Correlation Between Spirent Communications and Sempra

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

Diversification Opportunities for Spirent Communications and Sempra

0.28

Correlation Coefficient

Spirent Communications  Sempra

Modest diversification

The 3 months correlation between Spirent and Sempra is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Sempra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra 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 Sempra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sempra has no effect on the direction of Spirent Communications i.e., Spirent Communications and Sempra go up and down completely randomly.

Pair Corralation between Spirent Communications and Sempra

Assuming the 90 days horizon Spirent Communications plc is expected to under-perform the Sempra. In addition to that, Spirent Communications is 1.4 times more volatile than Sempra. It trades about -0.1 of its total potential returns per unit of risk. Sempra is currently generating about 0.01 per unit of volatility. If you would invest  8,322  in Sempra on October 23, 2024 and sell it today you would lose (16.00) from holding Sempra or give up 0.19% of portfolio value over 90 days.

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

Spirent Communications plc  vs.  Sempra

Spirent Communications

Risk-Adjusted Performance

0 of 100

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

Sempra

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sempra are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sempra may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Spirent Communications and Sempra

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

The idea behind Spirent Communications plc and Sempra 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.