Correlation Between Trellus Health and Cairn Homes

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

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

Diversification Opportunities for Trellus Health and Cairn Homes

-0.54

Correlation Coefficient

Trellus Health  Cairn Homes

Excellent diversification

The 3 months correlation between Trellus and Cairn is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Trellus Health plc 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 Trellus Health 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 Trellus Health plc 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 Trellus Health i.e., Trellus Health and Cairn Homes go up and down completely randomly.

Pair Corralation between Trellus Health and Cairn Homes

Assuming the 90 days trading horizon Trellus Health plc is expected to generate 58.36 times more return on investment than Cairn Homes. However, Trellus Health is 58.36 times more volatile than Cairn Homes PLC. It trades about 0.12 of its potential returns per unit of risk. Cairn Homes PLC is currently generating about -0.12 per unit of risk. If you would invest  63.00  in Trellus Health plc on December 11, 2024 and sell it today you would earn a total of  132.00  from holding Trellus Health plc or generate 209.52% return on investment over 90 days.

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

Trellus Health plc  vs.  Cairn Homes PLC

Trellus Health plc

Risk-Adjusted Performance

OK

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

Cairn Homes PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cairn Homes PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Pair Trading with Trellus Health and Cairn Homes

The main advantage of trading using opposite Trellus Health and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trellus Health 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 Trellus Health plc 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.