Correlation Between Spirent Communications and GALP ENERGIA

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

Diversification Opportunities for Spirent Communications and GALP ENERGIA

0.08

Correlation Coefficient

Spirent Communications  GALP ENERGIA

Significant diversification

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

Pair Corralation between Spirent Communications and GALP ENERGIA

Assuming the 90 days horizon Spirent Communications plc is expected to generate 0.77 times more return on investment than GALP ENERGIA. However, Spirent Communications plc is 1.3 times less risky than GALP ENERGIA. It trades about -0.03 of its potential returns per unit of risk. GALP ENERGIA B is currently generating about -0.07 per unit of risk. If you would invest  214.00  in Spirent Communications plc on October 5, 2024 and sell it today you would lose (2.00) from holding Spirent Communications plc or give up 0.93% of portfolio value over 90 days.

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

Spirent Communications plc  vs.  GALP ENERGIA B

Spirent Communications

Risk-Adjusted Performance

0 of 100

OK

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

GALP ENERGIA B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GALP ENERGIA B 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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Spirent Communications and GALP ENERGIA

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

The idea behind Spirent Communications plc and GALP ENERGIA B 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.