Question 1: Does a rise in Sprint stock become more likely after a drop?
Answer:
Consider two situations,
Case 1: Sprint stock drops by 5% or more in a week
Case 2: Sprint stock rises by 5% or more in a week
Is the chance of say a 5% rise in Sprint stock over the subsequent month after Case 1 or Case 2 occurs much higher for one versus the other?
The answer is not really. The chance of 5% rise over a month (21 trading days) is roughly that same at 34% for both cases.
Question 2: What about the other way around, does a drop in Sprint stock become more likely after a rise?
Answer:
Consider, once again, two cases:
Case 1: Sprint stock drops by 5% in a week
Case 2: Sprint stock rises by 5% in a week
Not really. The probability of a 5% drop after Case 1 or Case 2 is actually quite similar at 34% and 33%, respectively. The probability is also similar for the S&P 500, and for many other stocks.
Question 3: Does patience pay?
Answer:
If you buy and hold Sprint stock, expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you - at least, if the company is otherwise strong. Overall, according to data and Trefis machine learning engine's calculations, patience absolutely pays for most stocks!
After a drop of 5% in Sprint stock over a week (5 trading days), while there is only about 23% chance the stock will gain 5% over the subsequent week, there is more than 39% chance this will happen in 6 months, and 45% chance it’ll gain 5% over a year (about 252 trading days).
The table below shows the trend for Sprint Stock:
Given a change of Then chances Sprint will change Likelihood =
-5% over 5 days +5% over 1 day 9%
-5% over 5 days +5% over 5 days 24%
-5% over 5 days +5% over 10 days 30%
-5% over 5 days +5% over 21 days 34%
-5% over 5 days +5% over 63 days 39%
-5% over 5 days +5% over 252 days 45%
Question 4: What about the possibility of a drop after a rise if you wait for a while?
Answer:
After seeing a rise of 5% over 5 days, the chances of a 5% drop in Sprint stock are about 42% over the subsequent quarter of waiting (63 trading days). This chance increases slightly to about 45% when the waiting period is a year (252 trading days).
This increase in basic chance of an event happening is evident when you compare the first two rows of the table below.
Given a change of Then Chances Sprint will change Likelihood =
+5% over 5 days -5% over 1 day 5%
+5% over 5 days -5% over 5 days 22%
+5% over 5 days -5% over 10 days 30%
+5% over 5 days -5% over 21 days 33%
+5% over 5 days -5% over 63 days 42%
+5% over 5 days -5% over 252 days 45%
