Correlation Between Lar Espana and Aedas Homes

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

By analyzing existing cross correlation between Lar Espana Real and Aedas Homes SL, you can compare the effects of market volatilities on Lar Espana and Aedas 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 Lar Espana with a short position of Aedas Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lar Espana and Aedas Homes.

Diversification Opportunities for Lar Espana and Aedas Homes

0.19

Correlation Coefficient

Lar Espana  Aedas Homes

Average diversification

The 3 months correlation between Lar and Aedas is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Lar Espana Real and Aedas Homes SL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aedas Homes SL and Lar Espana 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 Lar Espana Real are associated (or correlated) with Aedas Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aedas Homes SL has no effect on the direction of Lar Espana i.e., Lar Espana and Aedas Homes go up and down completely randomly.

Pair Corralation between Lar Espana and Aedas Homes

Assuming the 90 days trading horizon Lar Espana is expected to generate 1.44 times less return on investment than Aedas Homes. But when comparing it to its historical volatility, Lar Espana Real is 1.01 times less risky than Aedas Homes. It trades about 0.07 of its potential returns per unit of risk. Aedas Homes SL is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,565  in Aedas Homes SL on September 12, 2024 and sell it today you would earn a total of  1,010  from holding Aedas Homes SL or generate 64.54% return on investment over 90 days.

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

Lar Espana Real  vs.  Aedas Homes SL

Lar Espana Real

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aedas Homes SL

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aedas Homes SL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Aedas Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lar Espana and Aedas Homes

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

The idea behind Lar Espana Real and Aedas Homes SL 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.