Correlation Between Aeorema Communications and Caledonia Investments

Can any of the company-specific risk be diversified away by investing in both Aeorema Communications and Caledonia Investments 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 Aeorema Communications and Caledonia Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aeorema Communications Plc and Caledonia Investments, you can compare the effects of market volatilities on Aeorema Communications and Caledonia Investments 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 Aeorema Communications with a short position of Caledonia Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and Caledonia Investments.

Diversification Opportunities for Aeorema Communications and Caledonia Investments

0.01

Correlation Coefficient

Aeorema Communications  Caledonia Investments

Significant diversification

The 3 months correlation between Aeorema and Caledonia is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and Caledonia Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Investments and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with Caledonia Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caledonia Investments has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and Caledonia Investments go up and down completely randomly.

Pair Corralation between Aeorema Communications and Caledonia Investments

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the Caledonia Investments. In addition to that, Aeorema Communications is 1.91 times more volatile than Caledonia Investments. It trades about -0.02 of its total potential returns per unit of risk. Caledonia Investments is currently generating about 0.01 per unit of volatility. If you would invest  365,351  in Caledonia Investments on October 26, 2024 and sell it today you would earn a total of  3,149  from holding Caledonia Investments or generate 0.86% return on investment over 90 days.

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

Aeorema Communications Plc  vs.  Caledonia Investments

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Caledonia Investments

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Caledonia Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Aeorema Communications and Caledonia Investments

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

The idea behind Aeorema Communications Plc and Caledonia Investments 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.