Correlation Between Major Drilling and Computer Modelling

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

Diversification Opportunities for Major Drilling and Computer Modelling

-0.13

Correlation Coefficient

Major Drilling  Computer Modelling

Good diversification

The 3 months correlation between Major and Computer is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Computer Modelling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computer Modelling 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 Computer Modelling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computer Modelling has no effect on the direction of Major Drilling i.e., Major Drilling and Computer Modelling go up and down completely randomly.

Pair Corralation between Major Drilling and Computer Modelling

Assuming the 90 days trading horizon Major Drilling Group is expected to generate 0.57 times more return on investment than Computer Modelling. However, Major Drilling Group is 1.75 times less risky than Computer Modelling. It trades about 0.16 of its potential returns per unit of risk. Computer Modelling Group is currently generating about 0.02 per unit of risk. If you would invest  828.00  in Major Drilling Group on September 14, 2024 and sell it today you would earn a total of  48.00  from holding Major Drilling Group or generate 5.8% return on investment over 90 days.

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

Major Drilling Group  vs.  Computer Modelling Group

Major Drilling Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Major Drilling may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Computer Modelling

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Major Drilling and Computer Modelling

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

The idea behind Major Drilling Group and Computer Modelling Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.