Correlation Between Spirent Communications and CeoTronics

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

Diversification Opportunities for Spirent Communications and CeoTronics

0.46

Correlation Coefficient

Spirent Communications  CeoTronics

Very weak diversification

The 3 months correlation between Spirent and CeoTronics is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and CeoTronics AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CeoTronics 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 CeoTronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CeoTronics AG has no effect on the direction of Spirent Communications i.e., Spirent Communications and CeoTronics go up and down completely randomly.

Pair Corralation between Spirent Communications and CeoTronics

Assuming the 90 days horizon Spirent Communications is expected to generate 14.39 times less return on investment than CeoTronics. But when comparing it to its historical volatility, Spirent Communications plc is 1.15 times less risky than CeoTronics. It trades about 0.0 of its potential returns per unit of risk. CeoTronics AG is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  559.00  in CeoTronics AG on October 26, 2024 and sell it today you would earn a total of  41.00  from holding CeoTronics AG or generate 7.33% 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.  CeoTronics AG

Spirent Communications

Risk-Adjusted Performance

0 of 100

Insignificant

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

CeoTronics AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CeoTronics AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, CeoTronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Spirent Communications and CeoTronics

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

The idea behind Spirent Communications plc and CeoTronics 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.