Correlation Between Cairn Homes and AIB Group

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

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

Diversification Opportunities for Cairn Homes and AIB Group

-0.11

Correlation Coefficient

Cairn Homes  AIB Group

Good diversification

The 3 months correlation between Cairn and AIB is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Cairn Homes PLC and AIB Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIB Group PLC and Cairn Homes 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 Cairn Homes PLC are associated (or correlated) with AIB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIB Group PLC has no effect on the direction of Cairn Homes i.e., Cairn Homes and AIB Group go up and down completely randomly.

Pair Corralation between Cairn Homes and AIB Group

Assuming the 90 days trading horizon Cairn Homes PLC is expected to generate 0.83 times more return on investment than AIB Group. However, Cairn Homes PLC is 1.2 times less risky than AIB Group. It trades about 0.25 of its potential returns per unit of risk. AIB Group PLC is currently generating about 0.01 per unit of risk. If you would invest  184.00  in Cairn Homes PLC on September 14, 2024 and sell it today you would earn a total of  53.00  from holding Cairn Homes PLC or generate 28.8% return on investment over 90 days.

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

Cairn Homes PLC  vs.  AIB Group PLC

Cairn Homes PLC

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Cairn Homes reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Cairn Homes and AIB Group

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

The idea behind Cairn Homes PLC and AIB Group 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.