Correlation Between Spirent Communications and Automatic Data
Can any of the company-specific risk be diversified away by investing in both Spirent Communications and Automatic Data 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 Spirent Communications and Automatic Data into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spirent Communications plc and Automatic Data Processing, you can compare the effects of market volatilities on Spirent Communications and Automatic Data 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 Spirent Communications with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and Automatic Data.
Diversification Opportunities for Spirent Communications and Automatic Data
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Spirent and Automatic is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and Spirent Communications 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 Spirent Communications plc are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Spirent Communications i.e., Spirent Communications and Automatic Data go up and down completely randomly.
Pair Corralation between Spirent Communications and Automatic Data
Assuming the 90 days trading horizon Spirent Communications plc is expected to under-perform the Automatic Data. But the stock apears to be less risky and, when comparing its historical volatility, Spirent Communications plc is 1.67 times less risky than Automatic Data. The stock trades about 0.0 of its potential returns per unit of risk. The Automatic Data Processing is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 25,058 in Automatic Data Processing on September 4, 2024 and sell it today you would earn a total of 5,486 from holding Automatic Data Processing or generate 21.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.4% |
| Values | Daily Returns |
Spirent Communications plc vs. Automatic Data Processing
Performance |
| Timeline |
| Spirent Communications |
| Automatic Data Processing |
Spirent Communications and Automatic Data Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spirent Communications and Automatic Data
The main advantage of trading using opposite Spirent Communications and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications position performs unexpectedly, Automatic Data 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 Automatic Data will offset losses from the drop in Automatic Data's long position.The idea behind Spirent Communications plc and Automatic Data Processing 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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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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