Correlation Between Major Drilling and Nasdaq

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

Diversification Opportunities for Major Drilling and Nasdaq

0.72

Correlation Coefficient

Major Drilling  Nasdaq

Poor diversification

The 3 months correlation between Major and Nasdaq is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc 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 Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of Major Drilling i.e., Major Drilling and Nasdaq go up and down completely randomly.

Pair Corralation between Major Drilling and Nasdaq

Assuming the 90 days horizon Major Drilling is expected to generate 1.22 times less return on investment than Nasdaq. In addition to that, Major Drilling is 1.89 times more volatile than Nasdaq Inc. It trades about 0.1 of its total potential returns per unit of risk. Nasdaq Inc is currently generating about 0.23 per unit of volatility. If you would invest  6,493  in Nasdaq Inc on September 18, 2024 and sell it today you would earn a total of  1,236  from holding Nasdaq Inc or generate 19.04% return on investment over 90 days.

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

Major Drilling Group  vs.  Nasdaq Inc

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.

Nasdaq Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nasdaq reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and Nasdaq

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

The idea behind Major Drilling Group and Nasdaq Inc 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .