Correlation Between Cairn Homes and Vitec Software

Can any of the company-specific risk be diversified away by investing in both Cairn Homes and Vitec Software 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 Vitec Software 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 Vitec Software Group, you can compare the effects of market volatilities on Cairn Homes and Vitec Software 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 Vitec Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cairn Homes and Vitec Software.

Diversification Opportunities for Cairn Homes and Vitec Software

0.61

Correlation Coefficient

Cairn Homes  Vitec Software

Poor diversification

The 3 months correlation between Cairn and Vitec is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Cairn Homes PLC and Vitec Software Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vitec Software Group 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 Vitec Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vitec Software Group has no effect on the direction of Cairn Homes i.e., Cairn Homes and Vitec Software go up and down completely randomly.

Pair Corralation between Cairn Homes and Vitec Software

Assuming the 90 days trading horizon Cairn Homes is expected to generate 11.04 times less return on investment than Vitec Software. But when comparing it to its historical volatility, Cairn Homes PLC is 1.32 times less risky than Vitec Software. It trades about 0.02 of its potential returns per unit of risk. Vitec Software Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  47,050  in Vitec Software Group on October 25, 2024 and sell it today you would earn a total of  8,582  from holding Vitec Software Group or generate 18.24% return on investment over 90 days.

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

Cairn Homes PLC  vs.  Vitec Software Group

Cairn Homes PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Cairn Homes is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vitec Software Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vitec Software Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vitec Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cairn Homes and Vitec Software

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

The idea behind Cairn Homes PLC and Vitec Software Group 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.