Correlation Between Spirent Communications and China BlueChemical

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

Diversification Opportunities for Spirent Communications and China BlueChemical

0.38

Correlation Coefficient

Spirent Communications  China BlueChemical

Weak diversification

The 3 months correlation between Spirent and China is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and China BlueChemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China BlueChemical 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 China BlueChemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China BlueChemical has no effect on the direction of Spirent Communications i.e., Spirent Communications and China BlueChemical go up and down completely randomly.

Pair Corralation between Spirent Communications and China BlueChemical

Assuming the 90 days horizon Spirent Communications plc is expected to under-perform the China BlueChemical. But the stock apears to be less risky and, when comparing its historical volatility, Spirent Communications plc is 2.44 times less risky than China BlueChemical. The stock trades about -0.03 of its potential returns per unit of risk. The China BlueChemical is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  23.00  in China BlueChemical on October 6, 2024 and sell it today you would earn a total of  3.00  from holding China BlueChemical or generate 13.04% 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.  China BlueChemical

Spirent Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China BlueChemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China BlueChemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China BlueChemical 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 China BlueChemical

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

The idea behind Spirent Communications plc and China BlueChemical 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.