Correlation Between Irish Residential and AIB Group

Can any of the company-specific risk be diversified away by investing in both Irish Residential and AIB Group 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 Irish Residential and AIB Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Irish Residential Properties and AIB Group PLC, you can compare the effects of market volatilities on Irish Residential and AIB Group 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 Irish Residential with a short position of AIB Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Irish Residential and AIB Group.

Diversification Opportunities for Irish Residential and AIB Group

0.43

Correlation Coefficient

Irish Residential  AIB Group

Very weak diversification

The 3 months correlation between Irish and AIB is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Irish Residential Properties and AIB Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIB Group PLC and Irish Residential 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 Irish Residential Properties are associated (or correlated) with AIB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIB Group PLC has no effect on the direction of Irish Residential i.e., Irish Residential and AIB Group go up and down completely randomly.

Pair Corralation between Irish Residential and AIB Group

Assuming the 90 days trading horizon Irish Residential is expected to generate 3.25 times less return on investment than AIB Group. But when comparing it to its historical volatility, Irish Residential Properties is 1.3 times less risky than AIB Group. It trades about 0.04 of its potential returns per unit of risk. AIB Group PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  531.00  in AIB Group PLC on December 29, 2024 and sell it today you would earn a total of  66.00  from holding AIB Group PLC or generate 12.43% return on investment over 90 days.

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

Irish Residential Properties  vs.  AIB Group PLC

Irish Residential

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Irish Residential Properties are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Irish Residential is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

AIB Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AIB Group PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, AIB Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Irish Residential and AIB Group

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

The idea behind Irish Residential Properties and AIB Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.