Correlation Between Falcon Oil and Cairn Homes

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

By analyzing existing cross correlation between Falcon Oil Gas and Cairn Homes PLC, you can compare the effects of market volatilities on Falcon Oil and Cairn Homes 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 Falcon Oil with a short position of Cairn Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Falcon Oil and Cairn Homes.

Diversification Opportunities for Falcon Oil and Cairn Homes

-0.6

Correlation Coefficient

Falcon Oil  Cairn Homes

Excellent diversification

The 3 months correlation between Falcon and Cairn is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Oil Gas and Cairn Homes PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cairn Homes PLC and Falcon Oil 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 Falcon Oil Gas are associated (or correlated) with Cairn Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cairn Homes PLC has no effect on the direction of Falcon Oil i.e., Falcon Oil and Cairn Homes go up and down completely randomly.

Pair Corralation between Falcon Oil and Cairn Homes

Assuming the 90 days trading horizon Falcon Oil Gas is expected to under-perform the Cairn Homes. In addition to that, Falcon Oil is 1.12 times more volatile than Cairn Homes PLC. It trades about -0.11 of its total potential returns per unit of risk. Cairn Homes PLC is currently generating about 0.18 per unit of volatility. If you would invest  15,360  in Cairn Homes PLC on September 12, 2024 and sell it today you would earn a total of  2,880  from holding Cairn Homes PLC or generate 18.75% return on investment over 90 days.

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

Falcon Oil Gas  vs.  Cairn Homes PLC

Falcon Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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.

Cairn Homes PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Cairn Homes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Falcon Oil and Cairn Homes

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

The idea behind Falcon Oil Gas and Cairn Homes PLC 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.