Correlation Between Autohome ADR and Spirent Communications

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

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

Diversification Opportunities for Autohome ADR and Spirent Communications

-0.25

Correlation Coefficient

Autohome ADR  Spirent Communications

Very good diversification

The 3 months correlation between Autohome and Spirent is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Autohome ADR and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Autohome ADR 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 Autohome ADR 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 Autohome ADR i.e., Autohome ADR and Spirent Communications go up and down completely randomly.

Pair Corralation between Autohome ADR and Spirent Communications

Assuming the 90 days trading horizon Autohome ADR is expected to generate 2.09 times more return on investment than Spirent Communications. However, Autohome ADR is 2.09 times more volatile than Spirent Communications plc. It trades about 0.01 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.01 per unit of risk. If you would invest  2,423  in Autohome ADR on October 4, 2024 and sell it today you would lose (3.00) from holding Autohome ADR or give up 0.12% of portfolio value over 90 days.

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

Autohome ADR  vs.  Spirent Communications plc

Autohome ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Autohome ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 Autohome ADR and Spirent Communications

The main advantage of trading using opposite Autohome ADR and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Autohome ADR 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 Autohome ADR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.