Correlation Between Vulcan Energy and AKITA Drilling

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

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

Diversification Opportunities for Vulcan Energy and AKITA Drilling

0.09

Correlation Coefficient

Vulcan Energy  AKITA Drilling

Significant diversification

The 3 months correlation between Vulcan and AKITA is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Energy Resources and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Vulcan Energy 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 Vulcan Energy Resources 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 Vulcan Energy i.e., Vulcan Energy and AKITA Drilling go up and down completely randomly.

Pair Corralation between Vulcan Energy and AKITA Drilling

Assuming the 90 days horizon Vulcan Energy Resources is expected to generate 2.21 times more return on investment than AKITA Drilling. However, Vulcan Energy is 2.21 times more volatile than AKITA Drilling. It trades about 0.03 of its potential returns per unit of risk. AKITA Drilling is currently generating about 0.01 per unit of risk. If you would invest  420.00  in Vulcan Energy Resources on September 26, 2024 and sell it today you would lose (78.00) from holding Vulcan Energy Resources or give up 18.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Vulcan Energy Resources  vs.  AKITA Drilling

Vulcan Energy Resources

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Energy Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Energy reported solid returns over the last few months and may actually be approaching a breakup point.

AKITA Drilling

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AKITA Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vulcan Energy and AKITA Drilling

The main advantage of trading using opposite Vulcan Energy and AKITA Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Energy 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 Vulcan Energy Resources 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.