Correlation Between Capital Drilling and Herald Investment

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

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

Diversification Opportunities for Capital Drilling and Herald Investment

0.89

Correlation Coefficient

Capital Drilling  Herald Investment

Very poor diversification

The 3 months correlation between Capital and Herald is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Capital Drilling and Herald Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herald Investment Trust 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 Herald Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herald Investment Trust has no effect on the direction of Capital Drilling i.e., Capital Drilling and Herald Investment go up and down completely randomly.

Pair Corralation between Capital Drilling and Herald Investment

Assuming the 90 days trading horizon Capital Drilling is expected to under-perform the Herald Investment. In addition to that, Capital Drilling is 2.95 times more volatile than Herald Investment Trust. It trades about -0.11 of its total potential returns per unit of risk. Herald Investment Trust is currently generating about -0.21 per unit of volatility. If you would invest  242,500  in Herald Investment Trust on December 23, 2024 and sell it today you would lose (36,500) from holding Herald Investment Trust or give up 15.05% of portfolio value over 90 days.

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

Capital Drilling  vs.  Herald Investment Trust

Capital Drilling

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Herald Investment Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Herald Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Capital Drilling and Herald Investment

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

The idea behind Capital Drilling and Herald Investment Trust 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.