Correlation Between Titan Machinery and AKITA Drilling

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

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

Diversification Opportunities for Titan Machinery and AKITA Drilling

0.53

Correlation Coefficient

Titan Machinery  AKITA Drilling

Very weak diversification

The 3 months correlation between Titan and AKITA is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Titan Machinery and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Titan Machinery 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 Titan Machinery are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of Titan Machinery i.e., Titan Machinery and AKITA Drilling go up and down completely randomly.

Pair Corralation between Titan Machinery and AKITA Drilling

Given the investment horizon of 90 days Titan Machinery is expected to under-perform the AKITA Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Titan Machinery is 1.03 times less risky than AKITA Drilling. The stock trades about -0.06 of its potential returns per unit of risk. The AKITA Drilling is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  117.00  in AKITA Drilling on September 12, 2024 and sell it today you would lose (2.00) from holding AKITA Drilling or give up 1.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.72%
Values	Daily Returns

Titan Machinery  vs.  AKITA Drilling

Titan Machinery

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Titan Machinery displayed solid returns over the last few months and may actually be approaching a breakup point.

AKITA Drilling

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, AKITA Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Titan Machinery and AKITA Drilling

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

The idea behind Titan Machinery and AKITA Drilling 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.