Correlation Between Evotec SE and Spirent Communications

Can any of the company-specific risk be diversified away by investing in both Evotec SE 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 Evotec SE and Spirent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Evotec SE and Spirent Communications plc, you can compare the effects of market volatilities on Evotec SE 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 Evotec SE with a short position of Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Evotec SE and Spirent Communications.

Diversification Opportunities for Evotec SE and Spirent Communications

0.33

Correlation Coefficient

Evotec SE  Spirent Communications

Weak diversification

The 3 months correlation between Evotec and Spirent is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Evotec SE and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Evotec SE 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 Evotec SE 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 Evotec SE i.e., Evotec SE and Spirent Communications go up and down completely randomly.

Pair Corralation between Evotec SE and Spirent Communications

Assuming the 90 days trading horizon Evotec SE is expected to under-perform the Spirent Communications. In addition to that, Evotec SE is 2.02 times more volatile than Spirent Communications plc. It trades about -0.08 of its total potential returns per unit of risk. Spirent Communications plc is currently generating about -0.03 per unit of volatility. If you would invest  214.00  in Spirent Communications plc on October 4, 2024 and sell it today you would lose (2.00) from holding Spirent Communications plc or give up 0.93% of portfolio value over 90 days.

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

Evotec SE  vs.  Spirent Communications plc

Evotec SE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Evotec SE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Evotec SE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Spirent Communications

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 7 (%) 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 February 2025.

Pair Trading with Evotec SE and Spirent Communications

The main advantage of trading using opposite Evotec SE and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evotec SE 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 Evotec SE 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.