Correlation Between Associated British and Capital Drilling
Can any of the company-specific risk be diversified away by investing in both Associated British and Capital 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 Associated British and Capital Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Associated British Foods and Capital Drilling, you can compare the effects of market volatilities on Associated British and Capital 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 Associated British with a short position of Capital Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Capital Drilling.
Diversification Opportunities for Associated British and Capital Drilling
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Associated and Capital is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Capital Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Drilling and Associated British 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 Associated British Foods are associated (or correlated) with Capital Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Drilling has no effect on the direction of Associated British i.e., Associated British and Capital Drilling go up and down completely randomly.
Pair Corralation between Associated British and Capital Drilling
Assuming the 90 days trading horizon Associated British Foods is expected to generate 0.65 times more return on investment than Capital Drilling. However, Associated British Foods is 1.53 times less risky than Capital Drilling. It trades about -0.08 of its potential returns per unit of risk. Capital Drilling is currently generating about -0.06 per unit of risk. If you would invest 258,500 in Associated British Foods on September 3, 2024 and sell it today you would lose (34,700) from holding Associated British Foods or give up 13.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Associated British Foods vs. Capital Drilling
Performance |
| Timeline |
| Associated British Foods |
| Capital Drilling |
Associated British and Capital Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Associated British and Capital Drilling
The main advantage of trading using opposite Associated British and Capital Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British position performs unexpectedly, Capital 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 Capital Drilling will offset losses from the drop in Capital Drilling's long position.| Associated British vs. National Beverage Corp | Associated British vs. Solstad Offshore ASA | Associated British vs. Ashtead Technology Holdings | Associated British vs. Playtech Plc |
| Capital Drilling vs. Zoom Video Communications | Capital Drilling vs. Enbridge | Capital Drilling vs. Endo International PLC | Capital Drilling vs. Invesco Health Care |
Check out your portfolio center.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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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