Correlation Between Major Drilling and Playa Hotels
Can any of the company-specific risk be diversified away by investing in both Major Drilling and Playa Hotels 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 Playa Hotels 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 Playa Hotels Resorts, you can compare the effects of market volatilities on Major Drilling and Playa Hotels 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 Playa Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Playa Hotels.
Diversification Opportunities for Major Drilling and Playa Hotels
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Major and Playa is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Playa Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playa Hotels Resorts 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 Playa Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playa Hotels Resorts has no effect on the direction of Major Drilling i.e., Major Drilling and Playa Hotels go up and down completely randomly.
Pair Corralation between Major Drilling and Playa Hotels
Assuming the 90 days horizon Major Drilling is expected to generate 4.81 times less return on investment than Playa Hotels. But when comparing it to its historical volatility, Major Drilling Group is 1.13 times less risky than Playa Hotels. It trades about 0.06 of its potential returns per unit of risk. Playa Hotels Resorts is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 785.00 in Playa Hotels Resorts on September 4, 2024 and sell it today you would earn a total of 135.00 from holding Playa Hotels Resorts or generate 17.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Major Drilling Group vs. Playa Hotels Resorts
Performance |
| Timeline |
| Major Drilling Group |
| Playa Hotels Resorts |
Major Drilling and Playa Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Major Drilling and Playa Hotels
The main advantage of trading using opposite Major Drilling and Playa Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling position performs unexpectedly, Playa Hotels 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 Playa Hotels will offset losses from the drop in Playa Hotels' long position.| Major Drilling vs. Direct Line Insurance | Major Drilling vs. National Health Investors | Major Drilling vs. REVO INSURANCE SPA | Major Drilling vs. SBI Insurance Group |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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