Correlation Between NYSE Composite and Parker Drilling

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

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

Diversification Opportunities for NYSE Composite and Parker Drilling

-0.5

Correlation Coefficient

NYSE Composite  Parker Drilling

Very good diversification

The 3 months correlation between NYSE and Parker is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Parker Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Drilling and NYSE Composite 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 NYSE Composite are associated (or correlated) with Parker Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parker Drilling has no effect on the direction of NYSE Composite i.e., NYSE Composite and Parker Drilling go up and down completely randomly.

Pair Corralation between NYSE Composite and Parker Drilling

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.63 times less return on investment than Parker Drilling. But when comparing it to its historical volatility, NYSE Composite is 5.79 times less risky than Parker Drilling. It trades about 0.07 of its potential returns per unit of risk. Parker Drilling is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  710.00  in Parker Drilling on September 23, 2024 and sell it today you would earn a total of  0.00  from holding Parker Drilling or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	5.43%
Values	Daily Returns

NYSE Composite  vs.  Parker Drilling

Pair Trading with NYSE Composite and Parker Drilling

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

The idea behind NYSE Composite and Parker Drilling 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 Stocks Directory module to find actively traded stocks across global markets.