Correlation Between Cairn Homes and 88 Energy

Can any of the company-specific risk be diversified away by investing in both Cairn Homes and 88 Energy 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 88 Energy 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 88 Energy, you can compare the effects of market volatilities on Cairn Homes and 88 Energy 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 88 Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cairn Homes and 88 Energy.

Diversification Opportunities for Cairn Homes and 88 Energy

-0.63

Correlation Coefficient

Cairn Homes  88 Energy

Excellent diversification

The 3 months correlation between Cairn and 88E is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cairn Homes PLC and 88 Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 88 Energy 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 88 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 88 Energy has no effect on the direction of Cairn Homes i.e., Cairn Homes and 88 Energy go up and down completely randomly.

Pair Corralation between Cairn Homes and 88 Energy

Assuming the 90 days trading horizon Cairn Homes PLC is expected to generate 0.97 times more return on investment than 88 Energy. However, Cairn Homes PLC is 1.03 times less risky than 88 Energy. It trades about 0.13 of its potential returns per unit of risk. 88 Energy is currently generating about -0.18 per unit of risk. If you would invest  16,960  in Cairn Homes PLC on October 7, 2024 and sell it today you would earn a total of  2,200  from holding Cairn Homes PLC or generate 12.97% return on investment over 90 days.

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

Cairn Homes PLC  vs.  88 Energy

Cairn Homes PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 10 (%) 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.

88 Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 88 Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Cairn Homes and 88 Energy

The main advantage of trading using opposite Cairn Homes and 88 Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cairn Homes position performs unexpectedly, 88 Energy 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 88 Energy will offset losses from the drop in 88 Energy's long position.

The idea behind Cairn Homes PLC and 88 Energy 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 Commodity Directory module to find actively traded commodities issued by global exchanges.