Correlation Between Spirent Communications and PRECISION DRILLING

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

Diversification Opportunities for Spirent Communications and PRECISION DRILLING

-0.01

Correlation Coefficient

Spirent Communications  PRECISION DRILLING

Good diversification

The 3 months correlation between Spirent and PRECISION is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and PRECISION DRILLING P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PRECISION DRILLING 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 PRECISION DRILLING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PRECISION DRILLING has no effect on the direction of Spirent Communications i.e., Spirent Communications and PRECISION DRILLING go up and down completely randomly.

Pair Corralation between Spirent Communications and PRECISION DRILLING

Assuming the 90 days horizon Spirent Communications plc is expected to under-perform the PRECISION DRILLING. But the stock apears to be less risky and, when comparing its historical volatility, Spirent Communications plc is 1.61 times less risky than PRECISION DRILLING. The stock trades about 0.0 of its potential returns per unit of risk. The PRECISION DRILLING P is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,050  in PRECISION DRILLING P on October 13, 2024 and sell it today you would earn a total of  300.00  from holding PRECISION DRILLING P or generate 4.96% return on investment over 90 days.

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

Spirent Communications plc  vs.  PRECISION DRILLING P

Spirent Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

PRECISION DRILLING

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PRECISION DRILLING P are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, PRECISION DRILLING reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and PRECISION DRILLING

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

The idea behind Spirent Communications plc and PRECISION DRILLING P 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.