Correlation Between Major Drilling and Sun Peak

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

Diversification Opportunities for Major Drilling and Sun Peak

0.73

Correlation Coefficient

Major Drilling  Sun Peak

Poor diversification

The 3 months correlation between Major and Sun is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Sun Peak Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Peak 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 Sun Peak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Peak Metals has no effect on the direction of Major Drilling i.e., Major Drilling and Sun Peak go up and down completely randomly.

Pair Corralation between Major Drilling and Sun Peak

Assuming the 90 days trading horizon Major Drilling Group is expected to under-perform the Sun Peak. But the stock apears to be less risky and, when comparing its historical volatility, Major Drilling Group is 2.16 times less risky than Sun Peak. The stock trades about -0.03 of its potential returns per unit of risk. The Sun Peak Metals is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Sun Peak Metals on December 20, 2024 and sell it today you would lose (3.00) from holding Sun Peak Metals or give up 9.68% of portfolio value over 90 days.

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

Major Drilling Group  vs.  Sun Peak Metals

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 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.

Sun Peak Metals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Major Drilling and Sun Peak

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

The idea behind Major Drilling Group and Sun Peak 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 Transaction History module to view history of all your transactions and understand their impact on performance.