Correlation Between Spirent Communications and North American
Can any of the company-specific risk be diversified away by investing in both Spirent Communications and North American 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 North American 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 The North American, you can compare the effects of market volatilities on Spirent Communications and North American 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 North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and North American.
Diversification Opportunities for Spirent Communications and North American
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Spirent and North is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and The North American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American 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 North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American has no effect on the direction of Spirent Communications i.e., Spirent Communications and North American go up and down completely randomly.
Pair Corralation between Spirent Communications and North American
Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.68 times more return on investment than North American. However, Spirent Communications plc is 1.46 times less risky than North American. It trades about 0.12 of its potential returns per unit of risk. The North American is currently generating about -0.33 per unit of risk. If you would invest 18,640 in Spirent Communications plc on December 8, 2024 and sell it today you would earn a total of 290.00 from holding Spirent Communications plc or generate 1.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Spirent Communications plc vs. The North American
Performance |
| Timeline |
| Spirent Communications |
| North American |
Spirent Communications and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spirent Communications and North American
The main advantage of trading using opposite Spirent Communications and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.| Spirent Communications vs. Grand Vision Media | ||
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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 Transaction History module to view history of all your transactions and understand their impact on performance.
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