Correlation Between AIB Group and Cairn Homes

Can any of the company-specific risk be diversified away by investing in both AIB Group and Cairn Homes 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 AIB Group and Cairn Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AIB Group PLC and Cairn Homes PLC, you can compare the effects of market volatilities on AIB Group and Cairn Homes 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 AIB Group with a short position of Cairn Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIB Group and Cairn Homes.

Diversification Opportunities for AIB Group and Cairn Homes

-0.31

Correlation Coefficient

AIB Group  Cairn Homes

Very good diversification

The 3 months correlation between AIB and Cairn is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding AIB Group PLC and Cairn Homes PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cairn Homes PLC and AIB Group 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 AIB Group PLC are associated (or correlated) with Cairn Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cairn Homes PLC has no effect on the direction of AIB Group i.e., AIB Group and Cairn Homes go up and down completely randomly.

Pair Corralation between AIB Group and Cairn Homes

Assuming the 90 days trading horizon AIB Group PLC is expected to under-perform the Cairn Homes. But the stock apears to be less risky and, when comparing its historical volatility, AIB Group PLC is 1.02 times less risky than Cairn Homes. The stock trades about -0.01 of its potential returns per unit of risk. The Cairn Homes PLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  193.00  in Cairn Homes PLC on September 4, 2024 and sell it today you would earn a total of  20.00  from holding Cairn Homes PLC or generate 10.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

AIB Group PLC  vs.  Cairn Homes PLC

AIB Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIB Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, AIB Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Cairn Homes PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Cairn Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AIB Group and Cairn Homes

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

The idea behind AIB Group PLC and Cairn Homes 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.