Correlation Between Spirent Communications and Wells Fargo

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

Diversification Opportunities for Spirent Communications and Wells Fargo

-0.05

Correlation Coefficient

Spirent Communications  Wells Fargo

Good diversification

The 3 months correlation between Spirent and Wells is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and West Fraser Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Fraser Timber 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Fraser Timber has no effect on the direction of Spirent Communications i.e., Spirent Communications and Wells Fargo go up and down completely randomly.

Pair Corralation between Spirent Communications and Wells Fargo

Assuming the 90 days horizon Spirent Communications plc is expected to under-perform the Wells Fargo. In addition to that, Spirent Communications is 2.22 times more volatile than West Fraser Timber. It trades about -0.1 of its total potential returns per unit of risk. West Fraser Timber is currently generating about 0.12 per unit of volatility. If you would invest  8,360  in West Fraser Timber on October 26, 2024 and sell it today you would earn a total of  295.00  from holding West Fraser Timber or generate 3.53% 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.  West Fraser Timber

Spirent Communications

Risk-Adjusted Performance

0 of 100

Insignificant

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.

West Fraser Timber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Wells Fargo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Spirent Communications and Wells Fargo

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

The idea behind Spirent Communications plc and West Fraser Timber 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.