Correlation Between Spirent Communications and Inspiration Healthcare

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

Diversification Opportunities for Spirent Communications and Inspiration Healthcare

-0.62

Correlation Coefficient

Spirent Communications  Inspiration Healthcare

Excellent diversification

The 3 months correlation between Spirent and Inspiration is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Inspiration Healthcare Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspiration Healthcare 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 Inspiration Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspiration Healthcare has no effect on the direction of Spirent Communications i.e., Spirent Communications and Inspiration Healthcare go up and down completely randomly.

Pair Corralation between Spirent Communications and Inspiration Healthcare

Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.92 times more return on investment than Inspiration Healthcare. However, Spirent Communications plc is 1.09 times less risky than Inspiration Healthcare. It trades about 0.0 of its potential returns per unit of risk. Inspiration Healthcare Group is currently generating about -0.05 per unit of risk. If you would invest  25,574  in Spirent Communications plc on September 23, 2024 and sell it today you would lose (7,924) from holding Spirent Communications plc or give up 30.98% of portfolio value over 90 days.

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

Spirent Communications plc  vs.  Inspiration Healthcare Group

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

Inspiration Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspiration Healthcare Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Spirent Communications and Inspiration Healthcare

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

The idea behind Spirent Communications plc and Inspiration Healthcare Group 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.