Correlation Between Cairn Homes and Aberforth Smaller

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

Diversification Opportunities for Cairn Homes and Aberforth Smaller

0.64

Correlation Coefficient

Cairn Homes  Aberforth Smaller

Poor diversification

The 3 months correlation between Cairn and Aberforth is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cairn Homes PLC and Aberforth Smaller Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberforth Smaller 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 Aberforth Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberforth Smaller has no effect on the direction of Cairn Homes i.e., Cairn Homes and Aberforth Smaller go up and down completely randomly.

Pair Corralation between Cairn Homes and Aberforth Smaller

Assuming the 90 days trading horizon Cairn Homes PLC is expected to under-perform the Aberforth Smaller. In addition to that, Cairn Homes is 1.78 times more volatile than Aberforth Smaller Companies. It trades about -0.09 of its total potential returns per unit of risk. Aberforth Smaller Companies is currently generating about -0.09 per unit of volatility. If you would invest  142,737  in Aberforth Smaller Companies on December 23, 2024 and sell it today you would lose (7,337) from holding Aberforth Smaller Companies or give up 5.14% of portfolio value over 90 days.

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

Cairn Homes PLC  vs.  Aberforth Smaller Companies

Cairn Homes PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cairn Homes PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Aberforth Smaller

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aberforth Smaller Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Aberforth Smaller is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cairn Homes and Aberforth Smaller

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

The idea behind Cairn Homes PLC and Aberforth Smaller Companies 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.