Correlation Between Spirent Communications and Crown Energy

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

Diversification Opportunities for Spirent Communications and Crown Energy

0.23

Correlation Coefficient

Spirent Communications  Crown Energy

Modest diversification

The 3 months correlation between Spirent and Crown is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Crown Energy AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crown Energy AB 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 Crown Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crown Energy AB has no effect on the direction of Spirent Communications i.e., Spirent Communications and Crown Energy go up and down completely randomly.

Pair Corralation between Spirent Communications and Crown Energy

Assuming the 90 days horizon Spirent Communications is expected to generate 47.43 times less return on investment than Crown Energy. But when comparing it to its historical volatility, Spirent Communications plc is 9.26 times less risky than Crown Energy. It trades about 0.03 of its potential returns per unit of risk. Crown Energy AB is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3.35  in Crown Energy AB on December 21, 2024 and sell it today you would earn a total of  1.00  from holding Crown Energy AB or generate 29.85% return on investment over 90 days.

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

Spirent Communications plc  vs.  Crown Energy AB

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

Crown Energy AB

Risk-Adjusted Performance

OK

Over the last 90 days Crown Energy AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Crown Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Crown Energy

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

The idea behind Spirent Communications plc and Crown Energy AB 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.