Correlation Between Scholastic and AKITA Drilling

Can any of the company-specific risk be diversified away by investing in both Scholastic and AKITA Drilling 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 Scholastic and AKITA Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Scholastic and AKITA Drilling, you can compare the effects of market volatilities on Scholastic and AKITA Drilling 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 Scholastic with a short position of AKITA Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scholastic and AKITA Drilling.

Diversification Opportunities for Scholastic and AKITA Drilling

0.01

Correlation Coefficient

Scholastic  AKITA Drilling

Significant diversification

The 3 months correlation between Scholastic and AKITA is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Scholastic and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Scholastic 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 Scholastic are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of Scholastic i.e., Scholastic and AKITA Drilling go up and down completely randomly.

Pair Corralation between Scholastic and AKITA Drilling

Given the investment horizon of 90 days Scholastic is expected to under-perform the AKITA Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Scholastic is 1.08 times less risky than AKITA Drilling. The stock trades about -0.03 of its potential returns per unit of risk. The AKITA Drilling is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  126.00  in AKITA Drilling on October 2, 2024 and sell it today you would lose (15.00) from holding AKITA Drilling or give up 11.9% of portfolio value over 90 days.

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

Scholastic  vs.  AKITA Drilling

Scholastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scholastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

AKITA Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AKITA Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AKITA Drilling is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Scholastic and AKITA Drilling

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

The idea behind Scholastic and AKITA Drilling 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.