Correlation Between Spirent Communications and Broadcom

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

Diversification Opportunities for Spirent Communications and Broadcom

0.5

Correlation Coefficient

Spirent Communications  Broadcom

Very weak diversification

The 3 months correlation between Spirent and Broadcom is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom 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 Broadcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadcom has no effect on the direction of Spirent Communications i.e., Spirent Communications and Broadcom go up and down completely randomly.

Pair Corralation between Spirent Communications and Broadcom

Assuming the 90 days trading horizon Spirent Communications plc is expected to under-perform the Broadcom. But the stock apears to be less risky and, when comparing its historical volatility, Spirent Communications plc is 27.29 times less risky than Broadcom. The stock trades about -0.01 of its potential returns per unit of risk. The Broadcom is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,632  in Broadcom on October 3, 2024 and sell it today you would earn a total of  17,684  from holding Broadcom or generate 313.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Spirent Communications plc  vs.  Broadcom

Spirent Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 6 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Broadcom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Broadcom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spirent Communications and Broadcom

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

The idea behind Spirent Communications plc and Broadcom 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.