Correlation Between Forum Energy and AKITA Drilling

Can any of the company-specific risk be diversified away by investing in both Forum 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 Forum 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 Forum Energy Metals and AKITA Drilling, you can compare the effects of market volatilities on Forum 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 Forum Energy with a short position of AKITA Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Forum Energy and AKITA Drilling.

Diversification Opportunities for Forum Energy and AKITA Drilling

0.57

Correlation Coefficient

Forum Energy  AKITA Drilling

Very weak diversification

The 3 months correlation between Forum and AKITA is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Forum Energy Metals and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Forum 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 Forum Energy Metals 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 Forum Energy i.e., Forum Energy and AKITA Drilling go up and down completely randomly.

Pair Corralation between Forum Energy and AKITA Drilling

Assuming the 90 days horizon Forum Energy Metals is expected to under-perform the AKITA Drilling. In addition to that, Forum Energy is 4.53 times more volatile than AKITA Drilling. It trades about -0.18 of its total potential returns per unit of risk. AKITA Drilling is currently generating about -0.06 per unit of volatility. If you would invest  164.00  in AKITA Drilling on August 31, 2024 and sell it today you would lose (4.00) from holding AKITA Drilling or give up 2.44% of portfolio value over 90 days.

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

Forum Energy Metals  vs.  AKITA Drilling

Forum Energy Metals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Forum Energy Metals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Forum Energy is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

AKITA Drilling

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, AKITA Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Forum Energy and AKITA Drilling

The main advantage of trading using opposite Forum Energy and AKITA Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Forum 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 Forum Energy Metals 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.