Correlation Between Next Mediaworks and United Drilling

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

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

Diversification Opportunities for Next Mediaworks and United Drilling

0.46

Correlation Coefficient

Next Mediaworks  United Drilling

Very weak diversification

The 3 months correlation between Next and United is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Next Mediaworks Limited and United Drilling Tools in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Drilling Tools and Next Mediaworks 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 Next Mediaworks Limited are associated (or correlated) with United Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Drilling Tools has no effect on the direction of Next Mediaworks i.e., Next Mediaworks and United Drilling go up and down completely randomly.

Pair Corralation between Next Mediaworks and United Drilling

Assuming the 90 days trading horizon Next Mediaworks Limited is expected to generate 1.91 times more return on investment than United Drilling. However, Next Mediaworks is 1.91 times more volatile than United Drilling Tools. It trades about 0.05 of its potential returns per unit of risk. United Drilling Tools is currently generating about 0.08 per unit of risk. If you would invest  764.00  in Next Mediaworks Limited on September 25, 2024 and sell it today you would earn a total of  67.00  from holding Next Mediaworks Limited or generate 8.77% return on investment over 90 days.

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

Next Mediaworks Limited  vs.  United Drilling Tools

Next Mediaworks

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Next Mediaworks Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Next Mediaworks exhibited solid returns over the last few months and may actually be approaching a breakup point.

United Drilling Tools

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, United Drilling may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Next Mediaworks and United Drilling

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

The idea behind Next Mediaworks Limited and United Drilling Tools 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..