Correlation Between Major Drilling and Falcon Energy

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

Diversification Opportunities for Major Drilling and Falcon Energy

0.28

Correlation Coefficient

Major Drilling  Falcon Energy

Modest diversification

The 3 months correlation between Major and Falcon is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials 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 Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Major Drilling i.e., Major Drilling and Falcon Energy go up and down completely randomly.

Pair Corralation between Major Drilling and Falcon Energy

Assuming the 90 days trading horizon Major Drilling Group is expected to generate 0.44 times more return on investment than Falcon Energy. However, Major Drilling Group is 2.26 times less risky than Falcon Energy. It trades about 0.0 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about -0.01 per unit of risk. If you would invest  843.00  in Major Drilling Group on September 26, 2024 and sell it today you would lose (9.00) from holding Major Drilling Group or give up 1.07% of portfolio value over 90 days.

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

Major Drilling Group  vs.  Falcon Energy Materials

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Major Drilling is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Falcon Energy Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Energy Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Falcon Energy is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Major Drilling and Falcon Energy

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

The idea behind Major Drilling Group and Falcon Energy Materials 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.