Correlation Between Aeorema Communications and Cairn Homes

Can any of the company-specific risk be diversified away by investing in both Aeorema Communications 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 Aeorema Communications and Cairn Homes 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 Cairn Homes PLC, you can compare the effects of market volatilities on Aeorema Communications 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 Aeorema Communications with a short position of Cairn Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and Cairn Homes.

Diversification Opportunities for Aeorema Communications and Cairn Homes

0.22

Correlation Coefficient

Aeorema Communications  Cairn Homes

Modest diversification

The 3 months correlation between Aeorema and Cairn is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc 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 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 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 Aeorema Communications i.e., Aeorema Communications and Cairn Homes go up and down completely randomly.

Pair Corralation between Aeorema Communications and Cairn Homes

Assuming the 90 days trading horizon Aeorema Communications is expected to generate 2.18 times less return on investment than Cairn Homes. But when comparing it to its historical volatility, Aeorema Communications Plc is 1.2 times less risky than Cairn Homes. It trades about 0.11 of its potential returns per unit of risk. Cairn Homes PLC is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  15,700  in Cairn Homes PLC on September 21, 2024 and sell it today you would earn a total of  3,320  from holding Cairn Homes PLC or generate 21.15% return on investment over 90 days.

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

Aeorema Communications Plc  vs.  Cairn Homes PLC

Aeorema Communications

Risk-Adjusted Performance

8 of 100

OK

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

Cairn Homes PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 15 (%) 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 Aeorema Communications and Cairn Homes

The main advantage of trading using opposite Aeorema Communications and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aeorema Communications 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 Aeorema Communications Plc 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.