Correlation Between Spirent Communications and Costco Wholesale

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

Diversification Opportunities for Spirent Communications and Costco Wholesale

0.13

Correlation Coefficient

Spirent Communications  Costco Wholesale

Average diversification

The 3 months correlation between Spirent and Costco is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of Spirent Communications i.e., Spirent Communications and Costco Wholesale go up and down completely randomly.

Pair Corralation between Spirent Communications and Costco Wholesale

Assuming the 90 days horizon Spirent Communications plc is expected to generate 1.47 times more return on investment than Costco Wholesale. However, Spirent Communications is 1.47 times more volatile than Costco Wholesale Corp. It trades about 0.03 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about -0.08 per unit of risk. If you would invest  212.00  in Spirent Communications plc on December 21, 2024 and sell it today you would earn a total of  4.00  from holding Spirent Communications plc or generate 1.89% 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.  Costco Wholesale Corp

Spirent Communications

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 1 (%) 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.

Costco Wholesale Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Spirent Communications and Costco Wholesale

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

The idea behind Spirent Communications plc and Costco Wholesale Corp 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.

Check out your portfolio center.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.