Correlation Between Spirent Communications and Ryanair Holdings

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

Diversification Opportunities for Spirent Communications and Ryanair Holdings

-0.46

Correlation Coefficient

Spirent Communications  Ryanair Holdings

Very good diversification

The 3 months correlation between Spirent and Ryanair is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Ryanair Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ryanair Holdings plc 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 Ryanair Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ryanair Holdings plc has no effect on the direction of Spirent Communications i.e., Spirent Communications and Ryanair Holdings go up and down completely randomly.

Pair Corralation between Spirent Communications and Ryanair Holdings

Assuming the 90 days trading horizon Spirent Communications is expected to generate 8.4 times less return on investment than Ryanair Holdings. But when comparing it to its historical volatility, Spirent Communications plc is 2.44 times less risky than Ryanair Holdings. It trades about 0.03 of its potential returns per unit of risk. Ryanair Holdings plc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  137,000  in Ryanair Holdings plc on September 4, 2024 and sell it today you would earn a total of  16,400  from holding Ryanair Holdings plc or generate 11.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Spirent Communications plc  vs.  Ryanair Holdings plc

Spirent Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 2 (%) 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ryanair Holdings plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ryanair Holdings plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Ryanair Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Spirent Communications and Ryanair Holdings

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

The idea behind Spirent Communications plc and Ryanair Holdings 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.