Correlation Between Capital Drilling and Universal Display

Can any of the company-specific risk be diversified away by investing in both Capital Drilling and Universal Display 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 Capital Drilling and Universal Display into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Drilling and Universal Display Corp, you can compare the effects of market volatilities on Capital Drilling and Universal Display 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 Capital Drilling with a short position of Universal Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Drilling and Universal Display.

Diversification Opportunities for Capital Drilling and Universal Display

-0.03

Correlation Coefficient

Capital Drilling  Universal Display

Good diversification

The 3 months correlation between Capital and Universal is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Capital Drilling and Universal Display Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display Corp and Capital 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 Capital Drilling are associated (or correlated) with Universal Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Display Corp has no effect on the direction of Capital Drilling i.e., Capital Drilling and Universal Display go up and down completely randomly.

Pair Corralation between Capital Drilling and Universal Display

Assuming the 90 days trading horizon Capital Drilling is expected to under-perform the Universal Display. But the stock apears to be less risky and, when comparing its historical volatility, Capital Drilling is 1.63 times less risky than Universal Display. The stock trades about -0.05 of its potential returns per unit of risk. The Universal Display Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  17,634  in Universal Display Corp on September 1, 2024 and sell it today you would lose (1,223) from holding Universal Display Corp or give up 6.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.9%
Values	Daily Returns

Capital Drilling  vs.  Universal Display Corp

Capital Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Capital Drilling is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Universal Display Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Capital Drilling and Universal Display

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

The idea behind Capital Drilling and Universal Display Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.