Correlation Between Major Drilling and Elanco Animal

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

Diversification Opportunities for Major Drilling and Elanco Animal

-0.3

Correlation Coefficient

Major Drilling  Elanco Animal

Very good diversification

The 3 months correlation between Major and Elanco is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Elanco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elanco Animal Health 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 Elanco Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elanco Animal Health has no effect on the direction of Major Drilling i.e., Major Drilling and Elanco Animal go up and down completely randomly.

Pair Corralation between Major Drilling and Elanco Animal

Assuming the 90 days horizon Major Drilling Group is expected to generate 0.79 times more return on investment than Elanco Animal. However, Major Drilling Group is 1.26 times less risky than Elanco Animal. It trades about 0.1 of its potential returns per unit of risk. Elanco Animal Health is currently generating about -0.03 per unit of risk. If you would invest  515.00  in Major Drilling Group on September 13, 2024 and sell it today you would earn a total of  65.00  from holding Major Drilling Group or generate 12.62% return on investment over 90 days.

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

Major Drilling Group  vs.  Elanco Animal Health

Major Drilling Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Major Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Major Drilling and Elanco Animal

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

The idea behind Major Drilling Group and Elanco Animal Health 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.