Correlation Between BRF SA and Spirent Communications

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

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

Diversification Opportunities for BRF SA and Spirent Communications

0.59

Correlation Coefficient

BRF SA  Spirent Communications

Very weak diversification

The 3 months correlation between BRF and Spirent is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BRF SA and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and BRF SA 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 BRF SA 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 BRF SA i.e., BRF SA and Spirent Communications go up and down completely randomly.

Pair Corralation between BRF SA and Spirent Communications

Assuming the 90 days horizon BRF SA is expected to generate 2.99 times more return on investment than Spirent Communications. However, BRF SA is 2.99 times more volatile than Spirent Communications plc. It trades about 0.16 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.3 per unit of risk. If you would invest  394.00  in BRF SA on September 23, 2024 and sell it today you would earn a total of  42.00  from holding BRF SA or generate 10.66% return on investment over 90 days.

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

BRF SA  vs.  Spirent Communications plc

BRF SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BRF SA reported solid returns over the last few months and may actually be approaching a breakup point.

Spirent Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 9 (%) 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.

Pair Trading with BRF SA and Spirent Communications

The main advantage of trading using opposite BRF SA and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRF SA 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 BRF SA 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.