Correlation Between Major Drilling and Alaska Energy

Can any of the company-specific risk be diversified away by investing in both Major Drilling and Alaska Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Major Drilling and Alaska Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Major Drilling Group and Alaska Energy Metals, you can compare the effects of market volatilities on Major Drilling and Alaska Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Major Drilling with a short position of Alaska Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Alaska Energy.

Diversification Opportunities for Major Drilling and Alaska Energy

0.26

Correlation Coefficient

Major Drilling  Alaska Energy

Modest diversification

The 3 months correlation between Major and Alaska is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Alaska Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Energy Metals and Major Drilling is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Major Drilling Group are associated (or correlated) with Alaska Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Energy Metals has no effect on the direction of Major Drilling i.e., Major Drilling and Alaska Energy go up and down completely randomly.

Pair Corralation between Major Drilling and Alaska Energy

Assuming the 90 days trading horizon Major Drilling Group is expected to generate 0.27 times more return on investment than Alaska Energy. However, Major Drilling Group is 3.76 times less risky than Alaska Energy. It trades about 0.01 of its potential returns per unit of risk. Alaska Energy Metals is currently generating about -0.02 per unit of risk. If you would invest  874.00  in Major Drilling Group on October 14, 2024 and sell it today you would lose (20.00) from holding Major Drilling Group or give up 2.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Major Drilling Group  vs.  Alaska Energy Metals

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Major Drilling is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Alaska Energy Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alaska Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Major Drilling and Alaska Energy

The main advantage of trading using opposite Major Drilling and Alaska Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling position performs unexpectedly, Alaska Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alaska Energy will offset losses from the drop in Alaska Energy's long position.

The idea behind Major Drilling Group and Alaska Energy Metals pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.