Correlation Between HCA Healthcare and Cairn Homes

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

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

Diversification Opportunities for HCA Healthcare and Cairn Homes

-0.26

Correlation Coefficient

HCA Healthcare  Cairn Homes

Very good diversification

The 3 months correlation between HCA and Cairn is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding HCA Healthcare 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 HCA Healthcare 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 HCA Healthcare 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 HCA Healthcare i.e., HCA Healthcare and Cairn Homes go up and down completely randomly.

Pair Corralation between HCA Healthcare and Cairn Homes

Assuming the 90 days trading horizon HCA Healthcare is expected to generate 1.25 times more return on investment than Cairn Homes. However, HCA Healthcare is 1.25 times more volatile than Cairn Homes PLC. It trades about 0.08 of its potential returns per unit of risk. Cairn Homes PLC is currently generating about -0.08 per unit of risk. If you would invest  30,304  in HCA Healthcare on December 20, 2024 and sell it today you would earn a total of  2,732  from holding HCA Healthcare or generate 9.02% return on investment over 90 days.

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

HCA Healthcare  vs.  Cairn Homes PLC

HCA Healthcare

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Healthcare are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HCA Healthcare may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cairn Homes PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cairn Homes PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with HCA Healthcare and Cairn Homes

The main advantage of trading using opposite HCA Healthcare and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HCA Healthcare 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 HCA Healthcare 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.