Correlation Between Spirent Communications and Associated British

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

Diversification Opportunities for Spirent Communications and Associated British

0.46

Correlation Coefficient

Spirent Communications  Associated British

Very weak diversification

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

Pair Corralation between Spirent Communications and Associated British

Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.57 times more return on investment than Associated British. However, Spirent Communications plc is 1.74 times less risky than Associated British. It trades about -0.07 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.08 per unit of risk. If you would invest  18,430  in Spirent Communications plc on September 1, 2024 and sell it today you would lose (1,300) from holding Spirent Communications plc or give up 7.05% of portfolio value over 90 days.

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

Spirent Communications plc  vs.  Associated British Foods

Spirent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirent Communications plc has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Spirent Communications and Associated British

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

The idea behind Spirent Communications plc and Associated British Foods 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.