Correlation Between Major Drilling and True North

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

Diversification Opportunities for Major Drilling and True North

-0.41

Correlation Coefficient

Major Drilling  True North

Very good diversification

The 3 months correlation between Major and True is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and True North Gems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on True North Gems 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 True North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of True North Gems has no effect on the direction of Major Drilling i.e., Major Drilling and True North go up and down completely randomly.

Pair Corralation between Major Drilling and True North

Assuming the 90 days trading horizon Major Drilling is expected to generate 516.07 times less return on investment than True North. But when comparing it to its historical volatility, Major Drilling Group is 13.07 times less risky than True North. It trades about 0.0 of its potential returns per unit of risk. True North Gems is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  12.00  in True North Gems on December 27, 2024 and sell it today you would earn a total of  11.00  from holding True North Gems or generate 91.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Major Drilling Group  vs.  True North Gems

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.

True North Gems

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in True North Gems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, True North showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and True North

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

The idea behind Major Drilling Group and True North Gems 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.