Correlation Between TRAINLINE PLC and Spirent Communications

Can any of the company-specific risk be diversified away by investing in both TRAINLINE PLC and Spirent 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 TRAINLINE PLC and Spirent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TRAINLINE PLC LS and Spirent Communications plc, you can compare the effects of market volatilities on TRAINLINE PLC and Spirent 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 TRAINLINE PLC with a short position of Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAINLINE PLC and Spirent Communications.

Diversification Opportunities for TRAINLINE PLC and Spirent Communications

0.55

Correlation Coefficient

TRAINLINE PLC  Spirent Communications

Very weak diversification

The 3 months correlation between TRAINLINE and Spirent is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding TRAINLINE PLC LS and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and TRAINLINE PLC 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 TRAINLINE PLC LS are associated (or correlated) with Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of TRAINLINE PLC i.e., TRAINLINE PLC and Spirent Communications go up and down completely randomly.

Pair Corralation between TRAINLINE PLC and Spirent Communications

Assuming the 90 days trading horizon TRAINLINE PLC LS is expected to generate 0.63 times more return on investment than Spirent Communications. However, TRAINLINE PLC LS is 1.59 times less risky than Spirent Communications. It trades about 0.04 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.0 per unit of risk. If you would invest  330.00  in TRAINLINE PLC LS on October 4, 2024 and sell it today you would earn a total of  170.00  from holding TRAINLINE PLC LS or generate 51.52% return on investment over 90 days.

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

TRAINLINE PLC LS  vs.  Spirent Communications plc

TRAINLINE PLC LS

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAINLINE PLC LS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAINLINE PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Spirent Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with TRAINLINE PLC and Spirent Communications

The main advantage of trading using opposite TRAINLINE PLC and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRAINLINE PLC position performs unexpectedly, Spirent 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 Spirent Communications will offset losses from the drop in Spirent Communications' long position.

The idea behind TRAINLINE PLC LS and Spirent 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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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.