Correlation Between FBD Holdings and Cairn Homes

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

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

Diversification Opportunities for FBD Holdings and Cairn Homes

0.78

Correlation Coefficient

FBD Holdings  Cairn Homes

Poor diversification

The 3 months correlation between FBD and Cairn is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding FBD Holdings 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 FBD Holdings 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 FBD Holdings 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 FBD Holdings i.e., FBD Holdings and Cairn Homes go up and down completely randomly.

Pair Corralation between FBD Holdings and Cairn Homes

Assuming the 90 days trading horizon FBD Holdings PLC is expected to generate 1.12 times more return on investment than Cairn Homes. However, FBD Holdings is 1.12 times more volatile than Cairn Homes PLC. It trades about 0.11 of its potential returns per unit of risk. Cairn Homes PLC is currently generating about -0.05 per unit of risk. If you would invest  1,320  in FBD Holdings PLC on January 28, 2024 and sell it today you would earn a total of  50.00  from holding FBD Holdings PLC or generate 3.79% return on investment over 90 days.

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

FBD Holdings PLC  vs.  Cairn Homes PLC

FBD Holdings PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FBD Holdings PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, FBD Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Cairn Homes PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cairn Homes PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Cairn Homes may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with FBD Holdings and Cairn Homes

The main advantage of trading using opposite FBD Holdings and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FBD Holdings 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 FBD Holdings 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.