Correlation Between Capital Drilling and Aeorema Communications

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

By analyzing existing cross correlation between Capital Drilling and Aeorema Communications Plc, you can compare the effects of market volatilities on Capital Drilling and Aeorema Communications 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 Aeorema Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Drilling and Aeorema Communications.

Diversification Opportunities for Capital Drilling and Aeorema Communications

-0.26

Correlation Coefficient

Capital Drilling  Aeorema Communications

Very good diversification

The 3 months correlation between Capital and Aeorema is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Capital Drilling and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications 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 Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of Capital Drilling i.e., Capital Drilling and Aeorema Communications go up and down completely randomly.

Pair Corralation between Capital Drilling and Aeorema Communications

Assuming the 90 days trading horizon Capital Drilling is expected to generate 1.51 times more return on investment than Aeorema Communications. However, Capital Drilling is 1.51 times more volatile than Aeorema Communications Plc. It trades about 0.0 of its potential returns per unit of risk. Aeorema Communications Plc is currently generating about -0.09 per unit of risk. If you would invest  8,510  in Capital Drilling on September 3, 2024 and sell it today you would lose (130.00) from holding Capital Drilling or give up 1.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Capital Drilling  vs.  Aeorema Communications Plc

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.

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeorema Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Capital Drilling and Aeorema Communications

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

The idea behind Capital Drilling and Aeorema Communications Plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.