Correlation Between Capital Drilling and Anglo American

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

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

Diversification Opportunities for Capital Drilling and Anglo American

-0.33

Correlation Coefficient

Capital Drilling  Anglo American

Very good diversification

The 3 months correlation between Capital and Anglo is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Capital Drilling and Anglo American PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American PLC 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American PLC has no effect on the direction of Capital Drilling i.e., Capital Drilling and Anglo American go up and down completely randomly.

Pair Corralation between Capital Drilling and Anglo American

Assuming the 90 days trading horizon Capital Drilling is expected to generate 0.83 times more return on investment than Anglo American. However, Capital Drilling is 1.21 times less risky than Anglo American. It trades about -0.01 of its potential returns per unit of risk. Anglo American PLC is currently generating about -0.02 per unit of risk. If you would invest  9,494  in Capital Drilling on September 29, 2024 and sell it today you would lose (1,394) from holding Capital Drilling or give up 14.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Capital Drilling  vs.  Anglo American PLC

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 comparatively stable basic indicators, Capital Drilling is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Anglo American PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Capital Drilling and Anglo American

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

The idea behind Capital Drilling and Anglo American PLC 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.