Correlation Between Major Drilling and Clean Energy
Can any of the company-specific risk be diversified away by investing in both Major Drilling and Clean Energy 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 Clean Energy 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 Clean Energy Fuels, you can compare the effects of market volatilities on Major Drilling and Clean Energy 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 Clean Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Clean Energy.
Diversification Opportunities for Major Drilling and Clean Energy
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Major and Clean is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Clean Energy Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Energy Fuels 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 Clean Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Energy Fuels has no effect on the direction of Major Drilling i.e., Major Drilling and Clean Energy go up and down completely randomly.
Pair Corralation between Major Drilling and Clean Energy
Assuming the 90 days horizon Major Drilling Group is expected to generate 0.62 times more return on investment than Clean Energy. However, Major Drilling Group is 1.6 times less risky than Clean Energy. It trades about 0.06 of its potential returns per unit of risk. Clean Energy Fuels is currently generating about -0.05 per unit of risk. If you would invest 565.00 in Major Drilling Group on August 28, 2024 and sell it today you would earn a total of 15.00 from holding Major Drilling Group or generate 2.65% 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. Clean Energy Fuels
Performance |
| Timeline |
| Major Drilling Group |
| Clean Energy Fuels |
Major Drilling and Clean Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Major Drilling and Clean Energy
The main advantage of trading using opposite Major Drilling and Clean Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling position performs unexpectedly, Clean Energy 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 Clean Energy will offset losses from the drop in Clean Energy's long position.| Major Drilling vs. Superior Plus Corp | Major Drilling vs. NMI Holdings | Major Drilling vs. Origin Agritech | Major Drilling vs. SIVERS SEMICONDUCTORS AB |
| Clean Energy vs. Superior Plus Corp | Clean Energy vs. NMI Holdings | Clean Energy vs. Origin Agritech | Clean Energy vs. SIVERS SEMICONDUCTORS AB |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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