Correlation Between Spirent Communications and Danone SA

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

Diversification Opportunities for Spirent Communications and Danone SA

0.62

Correlation Coefficient

Spirent Communications  Danone SA

Poor diversification

The 3 months correlation between Spirent and Danone is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA 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 Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of Spirent Communications i.e., Spirent Communications and Danone SA go up and down completely randomly.

Pair Corralation between Spirent Communications and Danone SA

Assuming the 90 days horizon Spirent Communications is expected to generate 1.97 times less return on investment than Danone SA. In addition to that, Spirent Communications is 2.03 times more volatile than Danone SA. It trades about 0.03 of its total potential returns per unit of risk. Danone SA is currently generating about 0.12 per unit of volatility. If you would invest  6,484  in Danone SA on December 30, 2024 and sell it today you would earn a total of  592.00  from holding Danone SA or generate 9.13% return on investment over 90 days.

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

Spirent Communications plc  vs.  Danone SA

Spirent Communications

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Danone SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Danone SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Spirent Communications and Danone SA

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

The idea behind Spirent Communications plc and Danone SA 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.