Correlation Between CAIRN HOMES and Olympic Steel

Can any of the company-specific risk be diversified away by investing in both CAIRN HOMES and Olympic Steel 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 CAIRN HOMES and Olympic Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CAIRN HOMES EO and Olympic Steel, you can compare the effects of market volatilities on CAIRN HOMES and Olympic Steel 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 CAIRN HOMES with a short position of Olympic Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAIRN HOMES and Olympic Steel.

Diversification Opportunities for CAIRN HOMES and Olympic Steel

0.36

Correlation Coefficient

CAIRN HOMES  Olympic Steel

Weak diversification

The 3 months correlation between CAIRN and Olympic is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding CAIRN HOMES EO and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel and CAIRN 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 CAIRN HOMES EO are associated (or correlated) with Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of CAIRN HOMES i.e., CAIRN HOMES and Olympic Steel go up and down completely randomly.

Pair Corralation between CAIRN HOMES and Olympic Steel

Assuming the 90 days horizon CAIRN HOMES EO is expected to under-perform the Olympic Steel. But the stock apears to be less risky and, when comparing its historical volatility, CAIRN HOMES EO is 1.15 times less risky than Olympic Steel. The stock trades about -0.06 of its potential returns per unit of risk. The Olympic Steel is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,205  in Olympic Steel on December 22, 2024 and sell it today you would lose (265.00) from holding Olympic Steel or give up 8.27% of portfolio value over 90 days.

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

CAIRN HOMES EO  vs.  Olympic Steel

CAIRN HOMES EO

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAIRN HOMES EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Olympic Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with CAIRN HOMES and Olympic Steel

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

The idea behind CAIRN HOMES EO and Olympic Steel 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..