Correlation Between Major Drilling and General Dynamics

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

Diversification Opportunities for Major Drilling and General Dynamics

0.2

Correlation Coefficient

Major Drilling  General Dynamics

Modest diversification

The 3 months correlation between Major and General is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics 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 General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Major Drilling i.e., Major Drilling and General Dynamics go up and down completely randomly.

Pair Corralation between Major Drilling and General Dynamics

Assuming the 90 days horizon Major Drilling is expected to generate 1.71 times less return on investment than General Dynamics. In addition to that, Major Drilling is 2.12 times more volatile than General Dynamics. It trades about 0.03 of its total potential returns per unit of risk. General Dynamics is currently generating about 0.12 per unit of volatility. If you would invest  23,699  in General Dynamics on April 21, 2025 and sell it today you would earn a total of  2,321  from holding General Dynamics or generate 9.79% 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.  General Dynamics

Major Drilling Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Major Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

General Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, General Dynamics may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Major Drilling and General Dynamics

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

The idea behind Major Drilling Group and General Dynamics 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.