Correlation Between Spirent Communications and Pure Storage

Can any of the company-specific risk be diversified away by investing in both Spirent Communications and Pure Storage 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 Pure Storage 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 Pure Storage, you can compare the effects of market volatilities on Spirent Communications and Pure Storage 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 Pure Storage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and Pure Storage.

Diversification Opportunities for Spirent Communications and Pure Storage

0.5

Correlation Coefficient

Spirent Communications  Pure Storage

Very weak diversification

The 3 months correlation between Spirent and Pure is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Pure Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pure Storage 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 Pure Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pure Storage has no effect on the direction of Spirent Communications i.e., Spirent Communications and Pure Storage go up and down completely randomly.

Pair Corralation between Spirent Communications and Pure Storage

Assuming the 90 days horizon Spirent Communications plc is expected to under-perform the Pure Storage. In addition to that, Spirent Communications is 1.61 times more volatile than Pure Storage. It trades about -0.1 of its total potential returns per unit of risk. Pure Storage is currently generating about 0.11 per unit of volatility. If you would invest  6,285  in Pure Storage on October 23, 2024 and sell it today you would earn a total of  205.00  from holding Pure Storage or generate 3.26% 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.  Pure Storage

Spirent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirent Communications plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Spirent Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pure Storage

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Storage are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Pure Storage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Pure Storage

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

The idea behind Spirent Communications plc and Pure Storage 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.