Correlation Between Spirent Communications and SL Green

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

Diversification Opportunities for Spirent Communications and SL Green

0.27

Correlation Coefficient

Spirent Communications  SL Green

Modest diversification

The 3 months correlation between Spirent and GEI is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and SL Green Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SL Green Realty 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 SL Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SL Green Realty has no effect on the direction of Spirent Communications i.e., Spirent Communications and SL Green go up and down completely randomly.

Pair Corralation between Spirent Communications and SL Green

Assuming the 90 days horizon Spirent Communications is expected to generate 1.15 times less return on investment than SL Green. In addition to that, Spirent Communications is 1.65 times more volatile than SL Green Realty. It trades about 0.07 of its total potential returns per unit of risk. SL Green Realty is currently generating about 0.13 per unit of volatility. If you would invest  2,555  in SL Green Realty on September 19, 2024 and sell it today you would earn a total of  4,149  from holding SL Green Realty or generate 162.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.66%
Values	Daily Returns

Spirent Communications plc  vs.  SL Green Realty

Spirent Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SL Green Realty

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SL Green Realty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SL Green is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Spirent Communications and SL Green

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

The idea behind Spirent Communications plc and SL Green Realty 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.