Correlation Between Donegal Investment and Cairn Homes

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

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

Diversification Opportunities for Donegal Investment and Cairn Homes

0.1

Correlation Coefficient

Donegal Investment  Cairn Homes

Average diversification

The 3 months correlation between Donegal and Cairn is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Donegal Investment Group 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 Donegal Investment 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 Donegal Investment Group 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 Donegal Investment i.e., Donegal Investment and Cairn Homes go up and down completely randomly.

Pair Corralation between Donegal Investment and Cairn Homes

Assuming the 90 days trading horizon Donegal Investment is expected to generate 16.05 times less return on investment than Cairn Homes. But when comparing it to its historical volatility, Donegal Investment Group is 12.05 times less risky than Cairn Homes. It trades about 0.22 of its potential returns per unit of risk. Cairn Homes PLC is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  211.00  in Cairn Homes PLC on September 17, 2024 and sell it today you would earn a total of  22.00  from holding Cairn Homes PLC or generate 10.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Donegal Investment Group  vs.  Cairn Homes PLC

Donegal Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Donegal Investment Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Donegal Investment 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

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 17 (%) 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.

Pair Trading with Donegal Investment and Cairn Homes

The main advantage of trading using opposite Donegal Investment and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Donegal Investment 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 Donegal Investment Group 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.