Correlation Between Spirent Communications and Digital Realty

Can any of the company-specific risk be diversified away by investing in both Spirent Communications and Digital Realty 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 Digital Realty 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 Digital Realty Trust, you can compare the effects of market volatilities on Spirent Communications and Digital Realty 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 Digital Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and Digital Realty.

Diversification Opportunities for Spirent Communications and Digital Realty

0.22

Correlation Coefficient

Spirent Communications  Digital Realty

Modest diversification

The 3 months correlation between Spirent and Digital is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Digital Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Realty Trust 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 Digital Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Realty Trust has no effect on the direction of Spirent Communications i.e., Spirent Communications and Digital Realty go up and down completely randomly.

Pair Corralation between Spirent Communications and Digital Realty

Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.74 times more return on investment than Digital Realty. However, Spirent Communications plc is 1.35 times less risky than Digital Realty. It trades about 0.11 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.02 per unit of risk. If you would invest  17,130  in Spirent Communications plc on October 27, 2024 and sell it today you would earn a total of  1,070  from holding Spirent Communications plc or generate 6.25% return on investment over 90 days.

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

Spirent Communications plc  vs.  Digital Realty Trust

Spirent Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Digital Realty Trust

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Digital Realty is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Spirent Communications and Digital Realty

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

The idea behind Spirent Communications plc and Digital Realty Trust 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.