Correlation Between Spirent Communications and Evolution

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

Diversification Opportunities for Spirent Communications and Evolution

-0.16

Correlation Coefficient

Spirent Communications  Evolution

Good diversification

The 3 months correlation between Spirent and Evolution is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution 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 Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of Spirent Communications i.e., Spirent Communications and Evolution go up and down completely randomly.

Pair Corralation between Spirent Communications and Evolution

Assuming the 90 days horizon Spirent Communications plc is expected to generate 1.45 times more return on investment than Evolution. However, Spirent Communications is 1.45 times more volatile than Evolution AB. It trades about 0.0 of its potential returns per unit of risk. Evolution AB is currently generating about -0.21 per unit of risk. If you would invest  202.00  in Spirent Communications plc on October 26, 2024 and sell it today you would lose (2.00) from holding Spirent Communications plc or give up 0.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Spirent Communications plc  vs.  Evolution AB

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.

Evolution AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Spirent Communications and Evolution

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

The idea behind Spirent Communications plc and Evolution 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.