Correlation Between Spirent Communications and Finnair Oyj

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

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

Diversification Opportunities for Spirent Communications and Finnair Oyj

0.73

Correlation Coefficient

Spirent Communications  Finnair Oyj

Poor diversification

The 3 months correlation between Spirent and Finnair is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj and Spirent Communications 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 Spirent Communications plc are associated (or correlated) with Finnair Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnair Oyj has no effect on the direction of Spirent Communications i.e., Spirent Communications and Finnair Oyj go up and down completely randomly.

Pair Corralation between Spirent Communications and Finnair Oyj

Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.94 times more return on investment than Finnair Oyj. However, Spirent Communications plc is 1.07 times less risky than Finnair Oyj. It trades about 0.02 of its potential returns per unit of risk. Finnair Oyj is currently generating about -0.03 per unit of risk. If you would invest  16,950  in Spirent Communications plc on December 2, 2024 and sell it today you would earn a total of  1,600  from holding Spirent Communications plc or generate 9.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Spirent Communications plc  vs.  Finnair Oyj

Spirent Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Spirent Communications is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Finnair Oyj

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Finnair Oyj are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Finnair Oyj unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Finnair Oyj

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

The idea behind Spirent Communications plc and Finnair Oyj 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.