Correlation Between Spirent Communications and Futura Medical

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

Diversification Opportunities for Spirent Communications and Futura Medical

-0.55

Correlation Coefficient

Spirent Communications  Futura Medical

Excellent diversification

The 3 months correlation between Spirent and Futura is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Futura Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futura Medical 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 Futura Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futura Medical has no effect on the direction of Spirent Communications i.e., Spirent Communications and Futura Medical go up and down completely randomly.

Pair Corralation between Spirent Communications and Futura Medical

Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.81 times more return on investment than Futura Medical. However, Spirent Communications plc is 1.23 times less risky than Futura Medical. It trades about 0.13 of its potential returns per unit of risk. Futura Medical is currently generating about -0.16 per unit of risk. If you would invest  17,230  in Spirent Communications plc on September 15, 2024 and sell it today you would earn a total of  530.00  from holding Spirent Communications plc or generate 3.08% return on investment over 90 days.

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

Spirent Communications plc  vs.  Futura Medical

Spirent Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 4 (%) 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.

Futura Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Futura Medical 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 Futura Medical

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

The idea behind Spirent Communications plc and Futura Medical 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.