Correlation Between JD Sports and Cairn Homes

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

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

Diversification Opportunities for JD Sports and Cairn Homes

-0.69

Correlation Coefficient

JD Sports  Cairn Homes

Excellent diversification

The 3 months correlation between JD Sports and Cairn is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion 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 JD Sports 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 JD Sports Fashion 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 JD Sports i.e., JD Sports and Cairn Homes go up and down completely randomly.

Pair Corralation between JD Sports and Cairn Homes

Assuming the 90 days trading horizon JD Sports Fashion is expected to under-perform the Cairn Homes. In addition to that, JD Sports is 1.76 times more volatile than Cairn Homes PLC. It trades about -0.24 of its total potential returns per unit of risk. Cairn Homes PLC is currently generating about 0.2 per unit of volatility. If you would invest  15,700  in Cairn Homes PLC on September 21, 2024 and sell it today you would earn a total of  3,320  from holding Cairn Homes PLC or generate 21.15% return on investment over 90 days.

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

JD Sports Fashion  vs.  Cairn Homes PLC

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cairn Homes PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 15 (%) 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.

Pair Trading with JD Sports and Cairn Homes

The main advantage of trading using opposite JD Sports and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JD Sports 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 JD Sports Fashion 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.