Correlation Between AIB Group and Irish Residential

Can any of the company-specific risk be diversified away by investing in both AIB Group and Irish Residential 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 Irish Residential 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 Irish Residential Properties, you can compare the effects of market volatilities on AIB Group and Irish Residential 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 Irish Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIB Group and Irish Residential.

Diversification Opportunities for AIB Group and Irish Residential

0.43

Correlation Coefficient

AIB Group  Irish Residential

Very weak diversification

The 3 months correlation between AIB and Irish is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding AIB Group PLC and Irish Residential Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Irish Residential 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 Irish Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Irish Residential has no effect on the direction of AIB Group i.e., AIB Group and Irish Residential go up and down completely randomly.

Pair Corralation between AIB Group and Irish Residential

Assuming the 90 days trading horizon AIB Group PLC is expected to generate 1.3 times more return on investment than Irish Residential. However, AIB Group is 1.3 times more volatile than Irish Residential Properties. It trades about 0.1 of its potential returns per unit of risk. Irish Residential Properties is currently generating about 0.04 per unit of risk. If you would invest  531.00  in AIB Group PLC on December 29, 2024 and sell it today you would earn a total of  66.00  from holding AIB Group PLC or generate 12.43% return on investment over 90 days.

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

AIB Group PLC  vs.  Irish Residential Properties

AIB Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AIB Group PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, AIB Group reported solid returns over the last few months and may actually be approaching a breakup point.

Irish Residential

Risk-Adjusted Performance

Insignificant

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

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

The idea behind AIB Group PLC and Irish Residential Properties 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.