Correlation Between Major Drilling and Thunderstruck Resources

Can any of the company-specific risk be diversified away by investing in both Major Drilling and Thunderstruck Resources 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 Thunderstruck Resources 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 Thunderstruck Resources, you can compare the effects of market volatilities on Major Drilling and Thunderstruck Resources 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 Thunderstruck Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Thunderstruck Resources.

Diversification Opportunities for Major Drilling and Thunderstruck Resources

0.15

Correlation Coefficient

Major Drilling  Thunderstruck Resources

Average diversification

The 3 months correlation between Major and Thunderstruck is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Thunderstruck Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thunderstruck Resources 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 Thunderstruck Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thunderstruck Resources has no effect on the direction of Major Drilling i.e., Major Drilling and Thunderstruck Resources go up and down completely randomly.

Pair Corralation between Major Drilling and Thunderstruck Resources

Assuming the 90 days trading horizon Major Drilling Group is expected to under-perform the Thunderstruck Resources. But the stock apears to be less risky and, when comparing its historical volatility, Major Drilling Group is 3.18 times less risky than Thunderstruck Resources. The stock trades about -0.09 of its potential returns per unit of risk. The Thunderstruck Resources is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Thunderstruck Resources on December 5, 2024 and sell it today you would lose (1.00) from holding Thunderstruck Resources or give up 16.67% of portfolio value over 90 days.

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

Major Drilling Group  vs.  Thunderstruck Resources

Major Drilling Group

Risk-Adjusted Performance

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 latest unfluctuating performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Thunderstruck Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thunderstruck Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Major Drilling and Thunderstruck Resources

The main advantage of trading using opposite Major Drilling and Thunderstruck Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling position performs unexpectedly, Thunderstruck Resources 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 Thunderstruck Resources will offset losses from the drop in Thunderstruck Resources' long position.

The idea behind Major Drilling Group and Thunderstruck Resources 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.