Correlation Between Summit Materials and Cairn Homes
Can any of the company-specific risk be diversified away by investing in both Summit Materials 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 Summit Materials and Cairn Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Summit Materials Cl and Cairn Homes PLC, you can compare the effects of market volatilities on Summit Materials 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 Summit Materials with a short position of Cairn Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and Cairn Homes.
Diversification Opportunities for Summit Materials and Cairn Homes
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Summit and Cairn is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials Cl 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 Summit Materials 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 Summit Materials Cl 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 Summit Materials i.e., Summit Materials and Cairn Homes go up and down completely randomly.
Pair Corralation between Summit Materials and Cairn Homes
Assuming the 90 days trading horizon Summit Materials is expected to generate 1.45 times less return on investment than Cairn Homes. In addition to that, Summit Materials is 1.27 times more volatile than Cairn Homes PLC. It trades about 0.07 of its total potential returns per unit of risk. Cairn Homes PLC is currently generating about 0.12 per unit of volatility. If you would invest 9,000 in Cairn Homes PLC on September 19, 2024 and sell it today you would earn a total of 10,060 from holding Cairn Homes PLC or generate 111.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.75% |
| Values | Daily Returns |
Summit Materials Cl vs. Cairn Homes PLC
Performance |
| Timeline |
| Summit Materials |
| Cairn Homes PLC |
Summit Materials and Cairn Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Summit Materials and Cairn Homes
The main advantage of trading using opposite Summit Materials and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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.| Summit Materials vs. Samsung Electronics Co | Summit Materials vs. Samsung Electronics Co | Summit Materials vs. Hyundai Motor | Summit Materials vs. Reliance Industries Ltd |
| Cairn Homes vs. Home Depot | Cairn Homes vs. Weiss Korea Opportunity | Cairn Homes vs. River and Mercantile | Cairn Homes vs. Chrysalis Investments |
Check out your portfolio center.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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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