Correlation Between Major Drilling and Chatham Rock

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

Diversification Opportunities for Major Drilling and Chatham Rock

-0.15

Correlation Coefficient

Major Drilling  Chatham Rock

Good diversification

The 3 months correlation between Major and Chatham is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Chatham Rock Phosphate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Rock Phosphate 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 Chatham Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Rock Phosphate has no effect on the direction of Major Drilling i.e., Major Drilling and Chatham Rock go up and down completely randomly.

Pair Corralation between Major Drilling and Chatham Rock

Assuming the 90 days trading horizon Major Drilling Group is expected to under-perform the Chatham Rock. But the stock apears to be less risky and, when comparing its historical volatility, Major Drilling Group is 3.46 times less risky than Chatham Rock. The stock trades about 0.0 of its potential returns per unit of risk. The Chatham Rock Phosphate is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Chatham Rock Phosphate on September 14, 2024 and sell it today you would lose (5.00) from holding Chatham Rock Phosphate or give up 33.33% of portfolio value over 90 days.

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

Major Drilling Group  vs.  Chatham Rock Phosphate

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. In spite of very unfluctuating forward indicators, Major Drilling may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chatham Rock Phosphate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and Chatham Rock

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

The idea behind Major Drilling Group and Chatham Rock Phosphate 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.