Correlation Between Capital Drilling and Light Science

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

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

Diversification Opportunities for Capital Drilling and Light Science

0.25

Correlation Coefficient

Capital Drilling  Light Science

Modest diversification

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

Pair Corralation between Capital Drilling and Light Science

Assuming the 90 days trading horizon Capital Drilling is expected to under-perform the Light Science. But the stock apears to be less risky and, when comparing its historical volatility, Capital Drilling is 1.35 times less risky than Light Science. The stock trades about -0.05 of its potential returns per unit of risk. The Light Science Technologies is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  265.00  in Light Science Technologies on October 26, 2024 and sell it today you would lose (25.00) from holding Light Science Technologies or give up 9.43% of portfolio value over 90 days.

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

Capital Drilling  vs.  Light Science Technologies

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 latest weak 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.

Light Science Techno

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Light Science Technologies 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 Light Science

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

The idea behind Capital Drilling and Light Science Technologies 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 Transaction History module to view history of all your transactions and understand their impact on performance.