Correlation Between Premier African and Cairn Homes

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

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

Diversification Opportunities for Premier African and Cairn Homes

0.19

Correlation Coefficient

Premier African  Cairn Homes

Average diversification

The 3 months correlation between Premier and Cairn is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Premier African Minerals 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 Premier African 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 Premier African Minerals 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 Premier African i.e., Premier African and Cairn Homes go up and down completely randomly.

Pair Corralation between Premier African and Cairn Homes

Assuming the 90 days trading horizon Premier African Minerals is expected to generate 7.27 times more return on investment than Cairn Homes. However, Premier African is 7.27 times more volatile than Cairn Homes PLC. It trades about 0.06 of its potential returns per unit of risk. Cairn Homes PLC is currently generating about 0.16 per unit of risk. If you would invest  5.15  in Premier African Minerals on September 26, 2024 and sell it today you would earn a total of  0.20  from holding Premier African Minerals or generate 3.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Premier African Minerals  vs.  Cairn Homes PLC

Premier African Minerals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Premier African Minerals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Premier African unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cairn Homes PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Cairn Homes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier African and Cairn Homes

The main advantage of trading using opposite Premier African and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premier African 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 Premier African Minerals 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.