Correlation Between Western Energy and AKITA Drilling

Can any of the company-specific risk be diversified away by investing in both Western 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 Western 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 Western Energy Services and AKITA Drilling, you can compare the effects of market volatilities on Western 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 Western Energy with a short position of AKITA Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Energy and AKITA Drilling.

Diversification Opportunities for Western Energy and AKITA Drilling

0.38

Correlation Coefficient

Western Energy  AKITA Drilling

Weak diversification

The 3 months correlation between Western and AKITA is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Western Energy Services and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Western 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 Western Energy Services 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 Western Energy i.e., Western Energy and AKITA Drilling go up and down completely randomly.

Pair Corralation between Western Energy and AKITA Drilling

Assuming the 90 days trading horizon Western Energy Services is expected to under-perform the AKITA Drilling. In addition to that, Western Energy is 2.15 times more volatile than AKITA Drilling. It trades about -0.05 of its total potential returns per unit of risk. AKITA Drilling is currently generating about -0.02 per unit of volatility. If you would invest  162.00  in AKITA Drilling on December 2, 2024 and sell it today you would lose (6.00) from holding AKITA Drilling or give up 3.7% of portfolio value over 90 days.

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

Western Energy Services  vs.  AKITA Drilling

Western Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

AKITA Drilling

Risk-Adjusted Performance

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 Western Energy and AKITA Drilling

The main advantage of trading using opposite Western Energy and AKITA Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western 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 Western Energy Services 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.