Correlation Between DISTRICT METALS and Spirent Communications

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Can any of the company-specific risk be diversified away by investing in both DISTRICT METALS and Spirent Communications 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 DISTRICT METALS and Spirent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DISTRICT METALS and Spirent Communications plc, you can compare the effects of market volatilities on DISTRICT METALS and Spirent Communications 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 DISTRICT METALS with a short position of Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of DISTRICT METALS and Spirent Communications.

Diversification Opportunities for DISTRICT METALS and Spirent Communications

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between DISTRICT and Spirent is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding DISTRICT METALS and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and DISTRICT METALS 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 DISTRICT METALS are associated (or correlated) with Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of DISTRICT METALS i.e., DISTRICT METALS and Spirent Communications go up and down completely randomly.

Pair Corralation between DISTRICT METALS and Spirent Communications

Assuming the 90 days trading horizon DISTRICT METALS is expected to generate 2.11 times more return on investment than Spirent Communications. However, DISTRICT METALS is 2.11 times more volatile than Spirent Communications plc. It trades about 0.19 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.26 per unit of risk. If you would invest  22.00  in DISTRICT METALS on September 17, 2024 and sell it today you would earn a total of  2.00  from holding DISTRICT METALS or generate 9.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

DISTRICT METALS  vs.  Spirent Communications plc

 Performance 
       Timeline  
DISTRICT METALS 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in DISTRICT METALS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DISTRICT METALS reported solid returns over the last few months and may actually be approaching a breakup point.
Spirent Communications 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

DISTRICT METALS and Spirent Communications Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DISTRICT METALS and Spirent Communications

The main advantage of trading using opposite DISTRICT METALS and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DISTRICT METALS position performs unexpectedly, Spirent Communications 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 Spirent Communications will offset losses from the drop in Spirent Communications' long position.
The idea behind DISTRICT METALS and Spirent Communications plc 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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