Correlation Between Spirent Communications and Wyndham Hotels

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

Diversification Opportunities for Spirent Communications and Wyndham Hotels

0.44

Correlation Coefficient

Spirent Communications  Wyndham Hotels

Very weak diversification

The 3 months correlation between Spirent and Wyndham is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts 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 Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of Spirent Communications i.e., Spirent Communications and Wyndham Hotels go up and down completely randomly.

Pair Corralation between Spirent Communications and Wyndham Hotels

Assuming the 90 days trading horizon Spirent Communications plc is expected to under-perform the Wyndham Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Spirent Communications plc is 1.93 times less risky than Wyndham Hotels. The stock trades about -0.02 of its potential returns per unit of risk. The Wyndham Hotels Resorts is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  7,233  in Wyndham Hotels Resorts on September 30, 2024 and sell it today you would earn a total of  2,921  from holding Wyndham Hotels Resorts or generate 40.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.22%
Values	Daily Returns

Spirent Communications plc  vs.  Wyndham Hotels Resorts

Spirent Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 5 (%) 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.

Wyndham Hotels Resorts

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Wyndham Hotels unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Wyndham Hotels

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

The idea behind Spirent Communications plc and Wyndham Hotels Resorts 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.