Correlation Between Aluminumof China and Major Drilling
Can any of the company-specific risk be diversified away by investing in both Aluminumof China and Major 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 Aluminumof China and Major Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aluminum of and Major Drilling Group, you can compare the effects of market volatilities on Aluminumof China and Major 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 Aluminumof China with a short position of Major Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminumof China and Major Drilling.
Diversification Opportunities for Aluminumof China and Major Drilling
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Aluminumof and Major is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Major Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Major Drilling Group and Aluminumof China 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 Aluminum of are associated (or correlated) with Major Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Major Drilling Group has no effect on the direction of Aluminumof China i.e., Aluminumof China and Major Drilling go up and down completely randomly.
Pair Corralation between Aluminumof China and Major Drilling
Assuming the 90 days horizon Aluminum of is expected to generate 1.71 times more return on investment than Major Drilling. However, Aluminumof China is 1.71 times more volatile than Major Drilling Group. It trades about 0.15 of its potential returns per unit of risk. Major Drilling Group is currently generating about 0.06 per unit of risk. If you would invest 49.00 in Aluminum of on August 31, 2024 and sell it today you would earn a total of 7.00 from holding Aluminum of or generate 14.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aluminum of vs. Major Drilling Group
Performance |
| Timeline |
| Aluminumof China |
| Major Drilling Group |
Aluminumof China and Major Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aluminumof China and Major Drilling
The main advantage of trading using opposite Aluminumof China and Major Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminumof China position performs unexpectedly, Major 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 Major Drilling will offset losses from the drop in Major Drilling's long position.| Aluminumof China vs. Norsk Hydro ASA | Aluminumof China vs. Norsk Hydro ASA | Aluminumof China vs. Kaiser Aluminum |
| Major Drilling vs. BHP Group Limited | Major Drilling vs. BHP Group Limited | Major Drilling vs. Rio Tinto Group | Major Drilling vs. Rio Tinto 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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