Correlation Between Noble Plc and Prairie Provident

Can any of the company-specific risk be diversified away by investing in both Noble Plc and Prairie Provident 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 Noble Plc and Prairie Provident into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Noble plc and Prairie Provident Resources, you can compare the effects of market volatilities on Noble Plc and Prairie Provident 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 Noble Plc with a short position of Prairie Provident. Check out your portfolio center. Please also check ongoing floating volatility patterns of Noble Plc and Prairie Provident.

Diversification Opportunities for Noble Plc and Prairie Provident

0.21

Correlation Coefficient

Noble Plc  Prairie Provident

Modest diversification

The 3 months correlation between Noble and Prairie is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Noble plc and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident and Noble Plc 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 Noble plc are associated (or correlated) with Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Noble Plc i.e., Noble Plc and Prairie Provident go up and down completely randomly.

Pair Corralation between Noble Plc and Prairie Provident

Allowing for the 90-day total investment horizon Noble plc is expected to under-perform the Prairie Provident. But the stock apears to be less risky and, when comparing its historical volatility, Noble plc is 5.79 times less risky than Prairie Provident. The stock trades about -0.07 of its potential returns per unit of risk. The Prairie Provident Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3.85  in Prairie Provident Resources on September 12, 2024 and sell it today you would lose (1.72) from holding Prairie Provident Resources or give up 44.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Noble plc  vs.  Prairie Provident Resources

Noble plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Noble plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Noble Plc is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Prairie Provident

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Noble Plc and Prairie Provident

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

The idea behind Noble plc and Prairie Provident Resources 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.