Correlation Between Major Drilling and Lamar Advertising

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

Diversification Opportunities for Major Drilling and Lamar Advertising

0.45

Correlation Coefficient

Major Drilling  Lamar Advertising

Very weak diversification

The 3 months correlation between Major and Lamar is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Lamar Advertising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamar Advertising 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 Lamar Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamar Advertising has no effect on the direction of Major Drilling i.e., Major Drilling and Lamar Advertising go up and down completely randomly.

Pair Corralation between Major Drilling and Lamar Advertising

Assuming the 90 days horizon Major Drilling Group is expected to generate 1.57 times more return on investment than Lamar Advertising. However, Major Drilling is 1.57 times more volatile than Lamar Advertising. It trades about 0.04 of its potential returns per unit of risk. Lamar Advertising is currently generating about -0.03 per unit of risk. If you would invest  525.00  in Major Drilling Group on September 22, 2024 and sell it today you would earn a total of  20.00  from holding Major Drilling Group or generate 3.81% return on investment over 90 days.

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

Major Drilling Group  vs.  Lamar Advertising

Major Drilling Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Major Drilling is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Lamar Advertising

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lamar Advertising has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Lamar Advertising is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Major Drilling and Lamar Advertising

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

The idea behind Major Drilling Group and Lamar Advertising 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.