Correlation Between Spirent Communications and Induction Healthcare

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

Diversification Opportunities for Spirent Communications and Induction Healthcare

0.17
  Correlation Coefficient

Average diversification

The 3 months correlation between Spirent and Induction is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Induction Healthcare Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Induction 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 Induction Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Induction Healthcare has no effect on the direction of Spirent Communications i.e., Spirent Communications and Induction Healthcare go up and down completely randomly.

Pair Corralation between Spirent Communications and Induction Healthcare

Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.24 times more return on investment than Induction Healthcare. However, Spirent Communications plc is 4.2 times less risky than Induction Healthcare. It trades about -0.08 of its potential returns per unit of risk. Induction Healthcare Group is currently generating about -0.06 per unit of risk. If you would invest  19,630  in Spirent Communications plc on October 9, 2024 and sell it today you would lose (2,330) from holding Spirent Communications plc or give up 11.87% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Spirent Communications plc  vs.  Induction Healthcare Group

 Performance 
       Timeline  
Spirent Communications 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Induction Healthcare 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Induction Healthcare Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Induction Healthcare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Spirent Communications and Induction Healthcare Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Spirent Communications and Induction Healthcare

The main advantage of trading using opposite Spirent Communications and Induction Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications position performs unexpectedly, Induction 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 Induction Healthcare will offset losses from the drop in Induction Healthcare's long position.
The idea behind Spirent Communications plc and Induction 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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