Correlation Between Bank of Ireland and Irish Residential

Can any of the company-specific risk be diversified away by investing in both Bank of Ireland 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 Bank of Ireland and Irish Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of Ireland and Irish Residential Properties, you can compare the effects of market volatilities on Bank of Ireland 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 Bank of Ireland with a short position of Irish Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Ireland and Irish Residential.

Diversification Opportunities for Bank of Ireland and Irish Residential

0.31

Correlation Coefficient

Bank of Ireland  Irish Residential

Weak diversification

The 3 months correlation between Bank and Irish is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Ireland and Irish Residential Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Irish Residential and Bank of Ireland 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 Bank of Ireland 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 Bank of Ireland i.e., Bank of Ireland and Irish Residential go up and down completely randomly.

Pair Corralation between Bank of Ireland and Irish Residential

Assuming the 90 days trading horizon Bank of Ireland is expected to generate 1.41 times more return on investment than Irish Residential. However, Bank of Ireland is 1.41 times more volatile than Irish Residential Properties. It trades about 0.18 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  869.00  in Bank of Ireland on December 30, 2024 and sell it today you would earn a total of  226.00  from holding Bank of Ireland or generate 26.01% return on investment over 90 days.

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

Bank of Ireland  vs.  Irish Residential Properties

Bank of Ireland

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Ireland are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bank of Ireland 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 Bank of Ireland and Irish Residential

The main advantage of trading using opposite Bank of Ireland and Irish Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Ireland 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 Bank of Ireland 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.