Correlation Between Spirent Communications and Golden Metal

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

Diversification Opportunities for Spirent Communications and Golden Metal

0.49

Correlation Coefficient

Spirent Communications  Golden Metal

Very weak diversification

The 3 months correlation between Spirent and Golden is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Golden Metal Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Metal Resources 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 Golden Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Metal Resources has no effect on the direction of Spirent Communications i.e., Spirent Communications and Golden Metal go up and down completely randomly.

Pair Corralation between Spirent Communications and Golden Metal

Assuming the 90 days trading horizon Spirent Communications is expected to generate 2.6 times less return on investment than Golden Metal. But when comparing it to its historical volatility, Spirent Communications plc is 5.27 times less risky than Golden Metal. It trades about 0.07 of its potential returns per unit of risk. Golden Metal Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,900  in Golden Metal Resources on September 12, 2024 and sell it today you would earn a total of  100.00  from holding Golden Metal Resources or generate 3.45% return on investment over 90 days.

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

Spirent Communications plc  vs.  Golden Metal Resources

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Golden Metal Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Metal Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Golden Metal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Spirent Communications and Golden Metal

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

The idea behind Spirent Communications plc and Golden Metal Resources 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.