Correlation Between Firstrand and Master Drilling

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

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

Diversification Opportunities for Firstrand and Master Drilling

-0.58

Correlation Coefficient

Firstrand  Master Drilling

Excellent diversification

The 3 months correlation between Firstrand and Master is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Firstrand and Master Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Master Drilling Group and Firstrand 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 Firstrand are associated (or correlated) with Master Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Master Drilling Group has no effect on the direction of Firstrand i.e., Firstrand and Master Drilling go up and down completely randomly.

Pair Corralation between Firstrand and Master Drilling

Assuming the 90 days trading horizon Firstrand is expected to under-perform the Master Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Firstrand is 1.19 times less risky than Master Drilling. The stock trades about -0.08 of its potential returns per unit of risk. The Master Drilling Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  125,800  in Master Drilling Group on September 3, 2024 and sell it today you would earn a total of  11,200  from holding Master Drilling Group or generate 8.9% return on investment over 90 days.

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

Firstrand  vs.  Master Drilling Group

Firstrand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Firstrand is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Master Drilling Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Master Drilling Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Master Drilling may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Firstrand and Master Drilling

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

The idea behind Firstrand and Master Drilling Group 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.