Correlation Between Cairn Homes and Malvern International

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

Diversification Opportunities for Cairn Homes and Malvern International

0.28

Correlation Coefficient

Cairn Homes  Malvern International

Modest diversification

The 3 months correlation between Cairn and Malvern is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Cairn Homes PLC and Malvern International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malvern International 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 Malvern International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malvern International has no effect on the direction of Cairn Homes i.e., Cairn Homes and Malvern International go up and down completely randomly.

Pair Corralation between Cairn Homes and Malvern International

Assuming the 90 days trading horizon Cairn Homes PLC is expected to generate 0.82 times more return on investment than Malvern International. However, Cairn Homes PLC is 1.21 times less risky than Malvern International. It trades about 0.13 of its potential returns per unit of risk. Malvern International is currently generating about -0.02 per unit of risk. If you would invest  13,267  in Cairn Homes PLC on October 8, 2024 and sell it today you would earn a total of  6,173  from holding Cairn Homes PLC or generate 46.53% return on investment over 90 days.

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

Cairn Homes PLC  vs.  Malvern International

Cairn Homes PLC

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 11 (%) 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.

Malvern International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Malvern International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Malvern International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cairn Homes and Malvern International

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

The idea behind Cairn Homes PLC and Malvern International 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.