Correlation Between Cathedral Energy and AKITA Drilling

Can any of the company-specific risk be diversified away by investing in both Cathedral Energy and AKITA Drilling 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 Cathedral Energy and AKITA Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cathedral Energy Services and AKITA Drilling, you can compare the effects of market volatilities on Cathedral Energy and AKITA Drilling 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 Cathedral Energy with a short position of AKITA Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathedral Energy and AKITA Drilling.

Diversification Opportunities for Cathedral Energy and AKITA Drilling

0.48

Correlation Coefficient

Cathedral Energy  AKITA Drilling

Very weak diversification

The 3 months correlation between Cathedral and AKITA is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Cathedral Energy Services and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Cathedral Energy 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 Cathedral Energy Services are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of Cathedral Energy i.e., Cathedral Energy and AKITA Drilling go up and down completely randomly.

Pair Corralation between Cathedral Energy and AKITA Drilling

Assuming the 90 days horizon Cathedral Energy is expected to generate 1.73 times less return on investment than AKITA Drilling. But when comparing it to its historical volatility, Cathedral Energy Services is 1.66 times less risky than AKITA Drilling. It trades about 0.13 of its potential returns per unit of risk. AKITA Drilling is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  95.00  in AKITA Drilling on September 12, 2024 and sell it today you would earn a total of  20.00  from holding AKITA Drilling or generate 21.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Cathedral Energy Services  vs.  AKITA Drilling

Cathedral Energy Services

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathedral Energy Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Cathedral Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AKITA Drilling

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, AKITA Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathedral Energy and AKITA Drilling

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

The idea behind Cathedral Energy Services and AKITA Drilling 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.