Correlation Between TRAVEL LEISURE and Spirent Communications

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

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and Spirent Communications plc, you can compare the effects of market volatilities on TRAVEL LEISURE 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 TRAVEL LEISURE with a short position of Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL LEISURE and Spirent Communications.

Diversification Opportunities for TRAVEL LEISURE and Spirent Communications

0.53

Correlation Coefficient

TRAVEL LEISURE  Spirent Communications

Very weak diversification

The 3 months correlation between TRAVEL and Spirent is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and TRAVEL LEISURE 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 TRAVEL LEISURE DL 01 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 TRAVEL LEISURE i.e., TRAVEL LEISURE and Spirent Communications go up and down completely randomly.

Pair Corralation between TRAVEL LEISURE and Spirent Communications

Assuming the 90 days trading horizon TRAVEL LEISURE is expected to generate 1.54 times less return on investment than Spirent Communications. But when comparing it to its historical volatility, TRAVEL LEISURE DL 01 is 2.38 times less risky than Spirent Communications. It trades about 0.1 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  122.00  in Spirent Communications plc on September 21, 2024 and sell it today you would earn a total of  92.00  from holding Spirent Communications plc or generate 75.41% return on investment over 90 days.

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

TRAVEL LEISURE DL 01  vs.  Spirent Communications plc

TRAVEL LEISURE DL

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TRAVEL LEISURE DL 01 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAVEL LEISURE reported solid returns over the last few months and may actually be approaching a breakup point.

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 stable basic indicators, Spirent Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TRAVEL LEISURE and Spirent Communications

The main advantage of trading using opposite TRAVEL LEISURE and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRAVEL LEISURE 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 TRAVEL LEISURE DL 01 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.