Correlation Between Major Drilling and Fuse Cobalt

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

Diversification Opportunities for Major Drilling and Fuse Cobalt

0.25

Correlation Coefficient

Major Drilling  Fuse Cobalt

Modest diversification

The 3 months correlation between Major and Fuse is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Fuse Cobalt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuse Cobalt 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 Fuse Cobalt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuse Cobalt has no effect on the direction of Major Drilling i.e., Major Drilling and Fuse Cobalt go up and down completely randomly.

Pair Corralation between Major Drilling and Fuse Cobalt

Assuming the 90 days trading horizon Major Drilling Group is expected to under-perform the Fuse Cobalt. But the stock apears to be less risky and, when comparing its historical volatility, Major Drilling Group is 4.48 times less risky than Fuse Cobalt. The stock trades about -0.33 of its potential returns per unit of risk. The Fuse Cobalt is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Fuse Cobalt on June 13, 2024 and sell it today you would lose (1.50) from holding Fuse Cobalt or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Major Drilling Group  vs.  Fuse Cobalt

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in October 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Fuse Cobalt

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fuse Cobalt are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Fuse Cobalt showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and Fuse Cobalt

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

The idea behind Major Drilling Group and Fuse Cobalt 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.