Correlation Between Spirent Communications and Vitec Software

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

Diversification Opportunities for Spirent Communications and Vitec Software

0.88

Correlation Coefficient

Spirent Communications  Vitec Software

Very poor diversification

The 3 months correlation between Spirent and Vitec is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Vitec Software Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vitec Software Group 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 Vitec Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vitec Software Group has no effect on the direction of Spirent Communications i.e., Spirent Communications and Vitec Software go up and down completely randomly.

Pair Corralation between Spirent Communications and Vitec Software

Assuming the 90 days trading horizon Spirent Communications is expected to generate 4.41 times less return on investment than Vitec Software. But when comparing it to its historical volatility, Spirent Communications plc is 1.68 times less risky than Vitec Software. It trades about 0.23 of its potential returns per unit of risk. Vitec Software Group is currently generating about 0.6 of returns per unit of risk over similar time horizon. If you would invest  54,000  in Vitec Software Group on November 19, 2024 and sell it today you would earn a total of  8,500  from holding Vitec Software Group or generate 15.74% return on investment over 90 days.

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

Spirent Communications plc  vs.  Vitec Software Group

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 9 (%) 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 March 2025.

Vitec Software Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vitec Software Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vitec Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Vitec Software

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

The idea behind Spirent Communications plc and Vitec Software Group 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 Anywhere module to track or share privately all of your investments from the convenience of any device.