Correlation Between Prestige Consumer and Spirent Communications

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

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

Diversification Opportunities for Prestige Consumer and Spirent Communications

0.56

Correlation Coefficient

Prestige Consumer  Spirent Communications

Very weak diversification

The 3 months correlation between Prestige and Spirent is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Consumer Healthcare and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Prestige Consumer 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 Prestige Consumer Healthcare 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 Prestige Consumer i.e., Prestige Consumer and Spirent Communications go up and down completely randomly.

Pair Corralation between Prestige Consumer and Spirent Communications

Assuming the 90 days horizon Prestige Consumer Healthcare is expected to generate 1.47 times more return on investment than Spirent Communications. However, Prestige Consumer is 1.47 times more volatile than Spirent Communications plc. It trades about 0.18 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.08 per unit of risk. If you would invest  6,350  in Prestige Consumer Healthcare on September 29, 2024 and sell it today you would earn a total of  1,200  from holding Prestige Consumer Healthcare or generate 18.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Prestige Consumer Healthcare  vs.  Spirent Communications plc

Prestige Consumer

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Consumer Healthcare are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prestige Consumer reported solid returns over the last few months and may actually be approaching a breakup point.

Spirent Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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 Prestige Consumer and Spirent Communications

The main advantage of trading using opposite Prestige Consumer and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prestige Consumer 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 Prestige Consumer Healthcare 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.