Correlation Between Spirent Communications and MEITUAN UNSPADR2B

Can any of the company-specific risk be diversified away by investing in both Spirent Communications and MEITUAN UNSPADR2B 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 MEITUAN UNSPADR2B 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 MEITUAN UNSPADR2B, you can compare the effects of market volatilities on Spirent Communications and MEITUAN UNSPADR2B 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 MEITUAN UNSPADR2B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and MEITUAN UNSPADR2B.

Diversification Opportunities for Spirent Communications and MEITUAN UNSPADR2B

0.08

Correlation Coefficient

Spirent Communications  MEITUAN UNSPADR2B

Significant diversification

The 3 months correlation between Spirent and MEITUAN is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and MEITUAN UNSPADR2B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MEITUAN UNSPADR2B 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 MEITUAN UNSPADR2B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MEITUAN UNSPADR2B has no effect on the direction of Spirent Communications i.e., Spirent Communications and MEITUAN UNSPADR2B go up and down completely randomly.

Pair Corralation between Spirent Communications and MEITUAN UNSPADR2B

Assuming the 90 days horizon Spirent Communications is expected to generate 7.49 times less return on investment than MEITUAN UNSPADR2B. But when comparing it to its historical volatility, Spirent Communications plc is 5.35 times less risky than MEITUAN UNSPADR2B. It trades about 0.1 of its potential returns per unit of risk. MEITUAN UNSPADR2B is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,700  in MEITUAN UNSPADR2B on September 11, 2024 and sell it today you would earn a total of  1,460  from holding MEITUAN UNSPADR2B or generate 54.07% return on investment over 90 days.

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

Spirent Communications plc  vs.  MEITUAN UNSPADR2B

Spirent Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 8 (%) 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 January 2025.

MEITUAN UNSPADR2B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MEITUAN UNSPADR2B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, MEITUAN UNSPADR2B reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and MEITUAN UNSPADR2B

The main advantage of trading using opposite Spirent Communications and MEITUAN UNSPADR2B positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications position performs unexpectedly, MEITUAN UNSPADR2B 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 MEITUAN UNSPADR2B will offset losses from the drop in MEITUAN UNSPADR2B's long position.

The idea behind Spirent Communications plc and MEITUAN UNSPADR2B 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.