Correlation Between Spirent Communications and Zegona Communications
Can any of the company-specific risk be diversified away by investing in both Spirent Communications and Zegona Communications 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 Zegona Communications 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 Zegona Communications Plc, you can compare the effects of market volatilities on Spirent Communications and Zegona Communications 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 Zegona Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and Zegona Communications.
Diversification Opportunities for Spirent Communications and Zegona Communications
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Spirent and Zegona is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Zegona Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zegona Communications 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 Zegona Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zegona Communications Plc has no effect on the direction of Spirent Communications i.e., Spirent Communications and Zegona Communications go up and down completely randomly.
Pair Corralation between Spirent Communications and Zegona Communications
Assuming the 90 days trading horizon Spirent Communications plc is expected to under-perform the Zegona Communications. But the stock apears to be less risky and, when comparing its historical volatility, Spirent Communications plc is 3.08 times less risky than Zegona Communications. The stock trades about -0.01 of its potential returns per unit of risk. The Zegona Communications Plc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 33,000 in Zegona Communications Plc on August 30, 2024 and sell it today you would earn a total of 2,000 from holding Zegona Communications Plc or generate 6.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Spirent Communications plc vs. Zegona Communications Plc
Performance |
| Timeline |
| Spirent Communications |
| Zegona Communications Plc |
Spirent Communications and Zegona Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spirent Communications and Zegona Communications
The main advantage of trading using opposite Spirent Communications and Zegona Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications position performs unexpectedly, Zegona Communications 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 Zegona Communications will offset losses from the drop in Zegona Communications' long position.The idea behind Spirent Communications plc and Zegona Communications 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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