Correlation Between Spirent Communications and Compass Group
Can any of the company-specific risk be diversified away by investing in both Spirent Communications and Compass Group 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 Compass Group 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 Compass Group PLC, you can compare the effects of market volatilities on Spirent Communications and Compass Group 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 Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and Compass Group.
Diversification Opportunities for Spirent Communications and Compass Group
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Spirent and Compass is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group PLC 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 Compass Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Group PLC has no effect on the direction of Spirent Communications i.e., Spirent Communications and Compass Group go up and down completely randomly.
Pair Corralation between Spirent Communications and Compass Group
Assuming the 90 days trading horizon Spirent Communications plc is expected to under-perform the Compass Group. In addition to that, Spirent Communications is 3.84 times more volatile than Compass Group PLC. It trades about -0.01 of its total potential returns per unit of risk. Compass Group PLC is currently generating about 0.08 per unit of volatility. If you would invest 184,307 in Compass Group PLC on August 30, 2024 and sell it today you would earn a total of 86,293 from holding Compass Group PLC or generate 46.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Spirent Communications plc vs. Compass Group PLC
Performance |
| Timeline |
| Spirent Communications |
| Compass Group PLC |
Spirent Communications and Compass Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spirent Communications and Compass Group
The main advantage of trading using opposite Spirent Communications and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications position performs unexpectedly, Compass Group 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 Compass Group will offset losses from the drop in Compass Group's long position.The idea behind Spirent Communications plc and Compass Group 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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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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