Correlation Between Major Drilling and Canadian Utilities

Can any of the company-specific risk be diversified away by investing in both Major Drilling and Canadian Utilities 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 Canadian Utilities 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 Canadian Utilities Limited, you can compare the effects of market volatilities on Major Drilling and Canadian Utilities 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 Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Canadian Utilities.

Diversification Opportunities for Major Drilling and Canadian Utilities

0.5

Correlation Coefficient

Major Drilling  Canadian Utilities

Very weak diversification

The 3 months correlation between Major and Canadian is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities 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 Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Major Drilling i.e., Major Drilling and Canadian Utilities go up and down completely randomly.

Pair Corralation between Major Drilling and Canadian Utilities

Assuming the 90 days trading horizon Major Drilling is expected to generate 1.59 times less return on investment than Canadian Utilities. In addition to that, Major Drilling is 2.39 times more volatile than Canadian Utilities Limited. It trades about 0.03 of its total potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.1 per unit of volatility. If you would invest  2,789  in Canadian Utilities Limited on September 10, 2024 and sell it today you would earn a total of  820.00  from holding Canadian Utilities Limited or generate 29.4% 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.  Canadian Utilities Limited

Major Drilling Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Major Drilling displayed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Utilities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Canadian Utilities is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Major Drilling and Canadian Utilities

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

The idea behind Major Drilling Group and Canadian Utilities Limited 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.