Correlation Between GB Group and Spectra Systems

Can any of the company-specific risk be diversified away by investing in both GB Group and Spectra Systems 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 GB Group and Spectra Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GB Group plc and Spectra Systems Corp, you can compare the effects of market volatilities on GB Group and Spectra Systems 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 GB Group with a short position of Spectra Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of GB Group and Spectra Systems.

Diversification Opportunities for GB Group and Spectra Systems

0.02

Correlation Coefficient

GB Group  Spectra Systems

Significant diversification

The 3 months correlation between GBG and Spectra is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding GB Group plc and Spectra Systems Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectra Systems Corp and GB Group 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 GB Group plc are associated (or correlated) with Spectra Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectra Systems Corp has no effect on the direction of GB Group i.e., GB Group and Spectra Systems go up and down completely randomly.

Pair Corralation between GB Group and Spectra Systems

Assuming the 90 days trading horizon GB Group plc is expected to under-perform the Spectra Systems. But the stock apears to be less risky and, when comparing its historical volatility, GB Group plc is 1.05 times less risky than Spectra Systems. The stock trades about -0.1 of its potential returns per unit of risk. The Spectra Systems Corp is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  23,800  in Spectra Systems Corp on December 27, 2024 and sell it today you would lose (2,300) from holding Spectra Systems Corp or give up 9.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

GB Group plc  vs.  Spectra Systems Corp

GB Group plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days GB Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Spectra Systems Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spectra Systems Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with GB Group and Spectra Systems

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

The idea behind GB Group plc and Spectra Systems Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.