Correlation Between CAIRN HOMES and WPP PLC
Can any of the company-specific risk be diversified away by investing in both CAIRN HOMES and WPP PLC 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 CAIRN HOMES and WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CAIRN HOMES EO and WPP PLC, you can compare the effects of market volatilities on CAIRN HOMES and WPP PLC 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 CAIRN HOMES with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAIRN HOMES and WPP PLC.
Diversification Opportunities for CAIRN HOMES and WPP PLC
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CAIRN and WPP is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding CAIRN HOMES EO and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC and CAIRN HOMES 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 CAIRN HOMES EO are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC has no effect on the direction of CAIRN HOMES i.e., CAIRN HOMES and WPP PLC go up and down completely randomly.
Pair Corralation between CAIRN HOMES and WPP PLC
Assuming the 90 days horizon CAIRN HOMES EO is expected to generate 1.7 times more return on investment than WPP PLC. However, CAIRN HOMES is 1.7 times more volatile than WPP PLC. It trades about -0.27 of its potential returns per unit of risk. WPP PLC is currently generating about -0.59 per unit of risk. If you would invest 238.00 in CAIRN HOMES EO on October 24, 2024 and sell it today you would lose (28.00) from holding CAIRN HOMES EO or give up 11.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CAIRN HOMES EO vs. WPP PLC
Performance |
| Timeline |
| CAIRN HOMES EO |
| WPP PLC |
CAIRN HOMES and WPP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CAIRN HOMES and WPP PLC
The main advantage of trading using opposite CAIRN HOMES and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAIRN HOMES position performs unexpectedly, WPP PLC 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 WPP PLC will offset losses from the drop in WPP PLC's long position.The idea behind CAIRN HOMES EO and WPP 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.| WPP PLC vs. CAIRN HOMES EO | WPP PLC vs. bet at home AG | WPP PLC vs. Focus Home Interactive | WPP PLC vs. Spirent Communications plc |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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