Correlation Between ATT and SPECTRA

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Can any of the company-specific risk be diversified away by investing in both ATT and SPECTRA 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 ATT and SPECTRA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ATT Inc and SPECTRA ENERGY PARTNERS, you can compare the effects of market volatilities on ATT and SPECTRA 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 ATT with a short position of SPECTRA. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and SPECTRA.

Diversification Opportunities for ATT and SPECTRA

-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between ATT and SPECTRA is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and SPECTRA ENERGY PARTNERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPECTRA ENERGY PARTNERS and ATT 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 ATT Inc are associated (or correlated) with SPECTRA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPECTRA ENERGY PARTNERS has no effect on the direction of ATT i.e., ATT and SPECTRA go up and down completely randomly.

Pair Corralation between ATT and SPECTRA

Taking into account the 90-day investment horizon ATT is expected to generate 115.13 times less return on investment than SPECTRA. But when comparing it to its historical volatility, ATT Inc is 72.57 times less risky than SPECTRA. It trades about 0.06 of its potential returns per unit of risk. SPECTRA ENERGY PARTNERS is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,472  in SPECTRA ENERGY PARTNERS on September 10, 2024 and sell it today you would earn a total of  305.00  from holding SPECTRA ENERGY PARTNERS or generate 3.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy68.15%
ValuesDaily Returns

ATT Inc  vs.  SPECTRA ENERGY PARTNERS

 Performance 
       Timeline  
ATT Inc 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ATT may actually be approaching a critical reversion point that can send shares even higher in January 2025.
SPECTRA ENERGY PARTNERS 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SPECTRA ENERGY PARTNERS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SPECTRA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

ATT and SPECTRA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ATT and SPECTRA

The main advantage of trading using opposite ATT and SPECTRA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT position performs unexpectedly, SPECTRA 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 SPECTRA will offset losses from the drop in SPECTRA's long position.
The idea behind ATT Inc and SPECTRA ENERGY PARTNERS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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