Correlation Between Reinsurance Group and Spirent Communications

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

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

Diversification Opportunities for Reinsurance Group and Spirent Communications

-0.14

Correlation Coefficient

Reinsurance Group  Spirent Communications

Good diversification

The 3 months correlation between Reinsurance and Spirent is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Reinsurance Group of and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Reinsurance 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 Reinsurance Group of 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 Reinsurance Group i.e., Reinsurance Group and Spirent Communications go up and down completely randomly.

Pair Corralation between Reinsurance Group and Spirent Communications

Assuming the 90 days trading horizon Reinsurance Group of is expected to generate 0.83 times more return on investment than Spirent Communications. However, Reinsurance Group of is 1.21 times less risky than Spirent Communications. It trades about 0.07 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.01 per unit of risk. If you would invest  20,800  in Reinsurance Group of on October 10, 2024 and sell it today you would earn a total of  400.00  from holding Reinsurance Group of or generate 1.92% return on investment over 90 days.

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

Reinsurance Group of  vs.  Spirent Communications plc

Reinsurance Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reinsurance Group of are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Reinsurance Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Spirent Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 3 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reinsurance Group and Spirent Communications

The main advantage of trading using opposite Reinsurance Group and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reinsurance Group 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 Reinsurance Group of 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.