Correlation Between Major Drilling and SKRR Exploration

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

Diversification Opportunities for Major Drilling and SKRR Exploration

-0.25

Correlation Coefficient

Major Drilling  SKRR Exploration

Very good diversification

The 3 months correlation between Major and SKRR is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and SKRR Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SKRR Exploration 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 SKRR Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SKRR Exploration has no effect on the direction of Major Drilling i.e., Major Drilling and SKRR Exploration go up and down completely randomly.

Pair Corralation between Major Drilling and SKRR Exploration

Assuming the 90 days trading horizon Major Drilling is expected to generate 1.79 times less return on investment than SKRR Exploration. But when comparing it to its historical volatility, Major Drilling Group is 5.01 times less risky than SKRR Exploration. It trades about 0.06 of its potential returns per unit of risk. SKRR Exploration is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  20.00  in SKRR Exploration on September 19, 2024 and sell it today you would lose (3.00) from holding SKRR Exploration or give up 15.0% 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.  SKRR Exploration

Major Drilling Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 4 (%) 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.

SKRR Exploration

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SKRR Exploration are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, SKRR Exploration showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and SKRR Exploration

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

The idea behind Major Drilling Group and SKRR Exploration 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.