Correlation Between Spirent Communications and Adidas AG

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

Diversification Opportunities for Spirent Communications and Adidas AG

0.5

Correlation Coefficient

Spirent Communications  Adidas AG

Very weak diversification

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

Pair Corralation between Spirent Communications and Adidas AG

Assuming the 90 days horizon Spirent Communications is expected to generate 2.71 times less return on investment than Adidas AG. In addition to that, Spirent Communications is 2.19 times more volatile than adidas AG. It trades about 0.01 of its total potential returns per unit of risk. adidas AG is currently generating about 0.06 per unit of volatility. If you would invest  14,652  in adidas AG on October 23, 2024 and sell it today you would earn a total of  9,678  from holding adidas AG or generate 66.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Spirent Communications plc  vs.  adidas AG

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.

adidas AG

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in adidas AG are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Adidas AG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Adidas AG

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

The idea behind Spirent Communications plc and adidas AG 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.