Correlation Between Renesas Electronics and Spirent Communications

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

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

Diversification Opportunities for Renesas Electronics and Spirent Communications

0.23

Correlation Coefficient

Renesas Electronics  Spirent Communications

Modest diversification

The 3 months correlation between Renesas and Spirent is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics i.e., Renesas Electronics and Spirent Communications go up and down completely randomly.

Pair Corralation between Renesas Electronics and Spirent Communications

Assuming the 90 days horizon Renesas Electronics is expected to generate 0.73 times more return on investment than Spirent Communications. However, Renesas Electronics is 1.37 times less risky than Spirent Communications. It trades about 0.03 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.0 per unit of risk. If you would invest  950.00  in Renesas Electronics on September 4, 2024 and sell it today you would earn a total of  264.00  from holding Renesas Electronics or generate 27.79% return on investment over 90 days.

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

Renesas Electronics  vs.  Spirent Communications plc

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with Renesas Electronics and Spirent Communications

The main advantage of trading using opposite Renesas Electronics and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renesas Electronics 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 Renesas Electronics 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.