Correlation Between Major Drilling and KINGBOARD CHEMICAL

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

Diversification Opportunities for Major Drilling and KINGBOARD CHEMICAL

0.36

Correlation Coefficient

Major Drilling  KINGBOARD CHEMICAL

Weak diversification

The 3 months correlation between Major and KINGBOARD is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and KINGBOARD CHEMICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINGBOARD CHEMICAL 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 KINGBOARD CHEMICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINGBOARD CHEMICAL has no effect on the direction of Major Drilling i.e., Major Drilling and KINGBOARD CHEMICAL go up and down completely randomly.

Pair Corralation between Major Drilling and KINGBOARD CHEMICAL

Assuming the 90 days horizon Major Drilling Group is expected to under-perform the KINGBOARD CHEMICAL. But the stock apears to be less risky and, when comparing its historical volatility, Major Drilling Group is 1.1 times less risky than KINGBOARD CHEMICAL. The stock trades about -0.05 of its potential returns per unit of risk. The KINGBOARD CHEMICAL is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  184.00  in KINGBOARD CHEMICAL on September 3, 2024 and sell it today you would earn a total of  40.00  from holding KINGBOARD CHEMICAL or generate 21.74% return on investment over 90 days.

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

Major Drilling Group  vs.  KINGBOARD CHEMICAL

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

KINGBOARD CHEMICAL

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KINGBOARD CHEMICAL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, KINGBOARD CHEMICAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and KINGBOARD CHEMICAL

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

The idea behind Major Drilling Group and KINGBOARD CHEMICAL 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.