Correlation Between Tri Pointe and Spirent Communications

Can any of the company-specific risk be diversified away by investing in both Tri Pointe and Spirent Communications 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 Tri Pointe and Spirent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tri Pointe Homes and Spirent Communications plc, you can compare the effects of market volatilities on Tri Pointe and Spirent Communications 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 Tri Pointe with a short position of Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tri Pointe and Spirent Communications.

Diversification Opportunities for Tri Pointe and Spirent Communications

-0.25

Correlation Coefficient

Tri Pointe  Spirent Communications

Very good diversification

The 3 months correlation between Tri and Spirent is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Tri Pointe Homes and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Tri Pointe 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 Tri Pointe Homes are associated (or correlated) with Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of Tri Pointe i.e., Tri Pointe and Spirent Communications go up and down completely randomly.

Pair Corralation between Tri Pointe and Spirent Communications

Assuming the 90 days horizon Tri Pointe is expected to generate 1.25 times less return on investment than Spirent Communications. But when comparing it to its historical volatility, Tri Pointe Homes is 2.07 times less risky than Spirent Communications. It trades about 0.04 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  204.00  in Spirent Communications plc on October 4, 2024 and sell it today you would earn a total of  8.00  from holding Spirent Communications plc or generate 3.92% return on investment over 90 days.

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

Tri Pointe Homes  vs.  Spirent Communications plc

Tri Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Spirent Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tri Pointe and Spirent Communications

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

The idea behind Tri Pointe Homes and Spirent Communications plc 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 CEOs Directory module to screen CEOs from public companies around the world.