Correlation Between Major Drilling and Lifeway Foods

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

Diversification Opportunities for Major Drilling and Lifeway Foods

-0.12

Correlation Coefficient

Major Drilling  Lifeway Foods

Good diversification

The 3 months correlation between Major and Lifeway is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods 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 Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Major Drilling i.e., Major Drilling and Lifeway Foods go up and down completely randomly.

Pair Corralation between Major Drilling and Lifeway Foods

Assuming the 90 days horizon Major Drilling is expected to generate 32.7 times less return on investment than Lifeway Foods. But when comparing it to its historical volatility, Major Drilling Group is 2.37 times less risky than Lifeway Foods. It trades about 0.01 of its potential returns per unit of risk. Lifeway Foods is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  590.00  in Lifeway Foods on September 30, 2024 and sell it today you would earn a total of  1,630  from holding Lifeway Foods or generate 276.27% 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.  Lifeway Foods

Major Drilling Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 1 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Lifeway Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifeway Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lifeway Foods 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 Lifeway Foods

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

The idea behind Major Drilling Group and Lifeway Foods 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.