Correlation Between Spirent Communications and Expedia

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

Diversification Opportunities for Spirent Communications and Expedia

0.08

Correlation Coefficient

Spirent Communications  Expedia

Significant diversification

The 3 months correlation between Spirent and Expedia is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Expedia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expedia Group 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 Expedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expedia Group has no effect on the direction of Spirent Communications i.e., Spirent Communications and Expedia go up and down completely randomly.

Pair Corralation between Spirent Communications and Expedia

Assuming the 90 days horizon Spirent Communications is expected to generate 131.37 times less return on investment than Expedia. But when comparing it to its historical volatility, Spirent Communications plc is 2.29 times less risky than Expedia. It trades about 0.0 of its potential returns per unit of risk. Expedia Group is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  12,246  in Expedia Group on September 4, 2024 and sell it today you would earn a total of  5,162  from holding Expedia Group or generate 42.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Spirent Communications plc  vs.  Expedia Group

Spirent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Expedia Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expedia Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Expedia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Expedia

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

The idea behind Spirent Communications plc and Expedia Group 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..