Correlation Between Major Drilling and Nufarm
Can any of the company-specific risk be diversified away by investing in both Major Drilling and Nufarm 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 Nufarm 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 Nufarm Limited, you can compare the effects of market volatilities on Major Drilling and Nufarm 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 Nufarm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Nufarm.
Diversification Opportunities for Major Drilling and Nufarm
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Major and Nufarm is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Nufarm Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm Limited 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 Nufarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Limited has no effect on the direction of Major Drilling i.e., Major Drilling and Nufarm go up and down completely randomly.
Pair Corralation between Major Drilling and Nufarm
Assuming the 90 days horizon Major Drilling Group is expected to generate 1.23 times more return on investment than Nufarm. However, Major Drilling is 1.23 times more volatile than Nufarm Limited. It trades about 0.04 of its potential returns per unit of risk. Nufarm Limited is currently generating about 0.01 per unit of risk. If you would invest 540.00 in Major Drilling Group on September 2, 2024 and sell it today you would earn a total of 10.00 from holding Major Drilling Group or generate 1.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Major Drilling Group vs. Nufarm Limited
Performance |
| Timeline |
| Major Drilling Group |
| Nufarm Limited |
Major Drilling and Nufarm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Major Drilling and Nufarm
The main advantage of trading using opposite Major Drilling and Nufarm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling position performs unexpectedly, Nufarm 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 Nufarm will offset losses from the drop in Nufarm's long position.| Major Drilling vs. BHP Group Limited | Major Drilling vs. Rio Tinto Group | Major Drilling vs. Vale SA | Major Drilling vs. Vale SA |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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