Correlation Between Major Drilling and CVW CleanTech

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

Diversification Opportunities for Major Drilling and CVW CleanTech

0.16

Correlation Coefficient

Major Drilling  CVW CleanTech

Average diversification

The 3 months correlation between Major and CVW is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and CVW CleanTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVW CleanTech 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 CVW CleanTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVW CleanTech has no effect on the direction of Major Drilling i.e., Major Drilling and CVW CleanTech go up and down completely randomly.

Pair Corralation between Major Drilling and CVW CleanTech

Assuming the 90 days trading horizon Major Drilling Group is expected to generate 1.02 times more return on investment than CVW CleanTech. However, Major Drilling is 1.02 times more volatile than CVW CleanTech. It trades about 0.01 of its potential returns per unit of risk. CVW CleanTech is currently generating about -0.03 per unit of risk. If you would invest  812.00  in Major Drilling Group on December 28, 2024 and sell it today you would earn a total of  2.00  from holding Major Drilling Group or generate 0.25% return on investment over 90 days.

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

Major Drilling Group  vs.  CVW CleanTech

Major Drilling Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

CVW CleanTech

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVW CleanTech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CVW CleanTech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Major Drilling and CVW CleanTech

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

The idea behind Major Drilling Group and CVW CleanTech 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.