Correlation Between Therma Bright and AKITA Drilling

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

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

Diversification Opportunities for Therma Bright and AKITA Drilling

-0.69

Correlation Coefficient

Therma Bright  AKITA Drilling

Excellent diversification

The 3 months correlation between Therma and AKITA is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Therma Bright and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Therma Bright 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 Therma Bright 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 Therma Bright i.e., Therma Bright and AKITA Drilling go up and down completely randomly.

Pair Corralation between Therma Bright and AKITA Drilling

Assuming the 90 days trading horizon Therma Bright is expected to generate 7.34 times more return on investment than AKITA Drilling. However, Therma Bright is 7.34 times more volatile than AKITA Drilling. It trades about 0.01 of its potential returns per unit of risk. AKITA Drilling is currently generating about 0.0 per unit of risk. If you would invest  5.50  in Therma Bright on October 4, 2024 and sell it today you would lose (2.00) from holding Therma Bright or give up 36.36% of portfolio value over 90 days.

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

Therma Bright  vs.  AKITA Drilling

Therma Bright

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Therma Bright and AKITA Drilling

The main advantage of trading using opposite Therma Bright and AKITA Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Therma Bright 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 Therma Bright 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.