Correlation Between Spirent Communications and NORTHEAST UTILITIES

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

Diversification Opportunities for Spirent Communications and NORTHEAST UTILITIES

0.4

Correlation Coefficient

Spirent Communications  NORTHEAST UTILITIES

Very weak diversification

The 3 months correlation between Spirent and NORTHEAST is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and NORTHEAST UTILITIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHEAST UTILITIES 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 NORTHEAST UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHEAST UTILITIES has no effect on the direction of Spirent Communications i.e., Spirent Communications and NORTHEAST UTILITIES go up and down completely randomly.

Pair Corralation between Spirent Communications and NORTHEAST UTILITIES

Assuming the 90 days horizon Spirent Communications is expected to generate 4.57 times less return on investment than NORTHEAST UTILITIES. In addition to that, Spirent Communications is 1.37 times more volatile than NORTHEAST UTILITIES. It trades about 0.01 of its total potential returns per unit of risk. NORTHEAST UTILITIES is currently generating about 0.04 per unit of volatility. If you would invest  5,436  in NORTHEAST UTILITIES on December 24, 2024 and sell it today you would earn a total of  164.00  from holding NORTHEAST UTILITIES or generate 3.02% return on investment over 90 days.

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

Spirent Communications plc  vs.  NORTHEAST UTILITIES

Spirent Communications

Risk-Adjusted Performance

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

NORTHEAST UTILITIES

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NORTHEAST UTILITIES are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking indicators, NORTHEAST UTILITIES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Spirent Communications and NORTHEAST UTILITIES

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

The idea behind Spirent Communications plc and NORTHEAST UTILITIES 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.