Correlation Between Spirent Communications and SilverCrest Metals

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

Diversification Opportunities for Spirent Communications and SilverCrest Metals

0.38

Correlation Coefficient

Spirent Communications  SilverCrest Metals

Weak diversification

The 3 months correlation between Spirent and SilverCrest is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and SilverCrest Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SilverCrest Metals 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 SilverCrest Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SilverCrest Metals has no effect on the direction of Spirent Communications i.e., Spirent Communications and SilverCrest Metals go up and down completely randomly.

Pair Corralation between Spirent Communications and SilverCrest Metals

Assuming the 90 days trading horizon Spirent Communications is expected to generate 2.49 times less return on investment than SilverCrest Metals. But when comparing it to its historical volatility, Spirent Communications plc is 6.36 times less risky than SilverCrest Metals. It trades about 0.11 of its potential returns per unit of risk. SilverCrest Metals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,406  in SilverCrest Metals on October 26, 2024 and sell it today you would earn a total of  23.00  from holding SilverCrest Metals or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	31.15%
Values	Daily Returns

Spirent Communications plc  vs.  SilverCrest Metals

Spirent Communications

Risk-Adjusted Performance

8 of 100

Modest

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 unsteady technical and fundamental indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SilverCrest Metals

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days SilverCrest Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, SilverCrest Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and SilverCrest Metals

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

The idea behind Spirent Communications plc and SilverCrest Metals 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.