Correlation Between Aedas Homes and Lar Espana

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

By analyzing existing cross correlation between Aedas Homes SL and Lar Espana Real, you can compare the effects of market volatilities on Aedas Homes and Lar Espana 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 Aedas Homes with a short position of Lar Espana. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aedas Homes and Lar Espana.

Diversification Opportunities for Aedas Homes and Lar Espana

0.19

Correlation Coefficient

Aedas Homes  Lar Espana

Average diversification

The 3 months correlation between Aedas and Lar is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Aedas Homes SL and Lar Espana Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lar Espana Real and Aedas 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 Aedas Homes SL are associated (or correlated) with Lar Espana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lar Espana Real has no effect on the direction of Aedas Homes i.e., Aedas Homes and Lar Espana go up and down completely randomly.

Pair Corralation between Aedas Homes and Lar Espana

Assuming the 90 days trading horizon Aedas Homes SL is expected to generate 1.01 times more return on investment than Lar Espana. However, Aedas Homes is 1.01 times more volatile than Lar Espana Real. It trades about 0.09 of its potential returns per unit of risk. Lar Espana Real is currently generating about 0.07 per unit of risk. If you would invest  1,565  in Aedas Homes SL on September 12, 2024 and sell it today you would earn a total of  1,010  from holding Aedas Homes SL or generate 64.54% return on investment over 90 days.

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

Aedas Homes SL  vs.  Lar Espana Real

Aedas Homes SL

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aedas Homes SL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Aedas Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lar Espana Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lar Espana Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Lar Espana is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aedas Homes and Lar Espana

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

The idea behind Aedas Homes SL and Lar Espana Real 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.