Correlation Between Cairn Homes and Teradata Corp

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

By analyzing existing cross correlation between Cairn Homes PLC and Teradata Corp, you can compare the effects of market volatilities on Cairn Homes and Teradata Corp 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 Teradata Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cairn Homes and Teradata Corp.

Diversification Opportunities for Cairn Homes and Teradata Corp

0.62

Correlation Coefficient

Cairn Homes  Teradata Corp

Poor diversification

The 3 months correlation between Cairn and Teradata is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cairn Homes PLC and Teradata Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradata Corp 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 PLC are associated (or correlated) with Teradata Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradata Corp has no effect on the direction of Cairn Homes i.e., Cairn Homes and Teradata Corp go up and down completely randomly.

Pair Corralation between Cairn Homes and Teradata Corp

Assuming the 90 days trading horizon Cairn Homes PLC is expected to generate 0.72 times more return on investment than Teradata Corp. However, Cairn Homes PLC is 1.38 times less risky than Teradata Corp. It trades about 0.23 of its potential returns per unit of risk. Teradata Corp is currently generating about 0.11 per unit of risk. If you would invest  15,440  in Cairn Homes PLC on September 14, 2024 and sell it today you would earn a total of  4,000  from holding Cairn Homes PLC or generate 25.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Cairn Homes PLC  vs.  Teradata Corp

Cairn Homes PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 17 (%) 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.

Teradata Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Teradata Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Teradata Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cairn Homes and Teradata Corp

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

The idea behind Cairn Homes PLC and Teradata Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.