Correlation Between Advanced Medical and Spirent Communications

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

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

Diversification Opportunities for Advanced Medical and Spirent Communications

-0.48

Correlation Coefficient

Advanced Medical  Spirent Communications

Very good diversification

The 3 months correlation between Advanced and Spirent is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Medical Solutions and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Advanced Medical 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 Advanced Medical Solutions 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 Advanced Medical i.e., Advanced Medical and Spirent Communications go up and down completely randomly.

Pair Corralation between Advanced Medical and Spirent Communications

Assuming the 90 days trading horizon Advanced Medical Solutions is expected to under-perform the Spirent Communications. In addition to that, Advanced Medical is 3.54 times more volatile than Spirent Communications plc. It trades about -0.05 of its total potential returns per unit of risk. Spirent Communications plc is currently generating about 0.05 per unit of volatility. If you would invest  17,170  in Spirent Communications plc on September 24, 2024 and sell it today you would earn a total of  480.00  from holding Spirent Communications plc or generate 2.8% return on investment over 90 days.

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

Advanced Medical Solutions  vs.  Spirent Communications plc

Advanced Medical Sol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Medical Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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

Pair Trading with Advanced Medical and Spirent Communications

The main advantage of trading using opposite Advanced Medical and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Medical 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 Advanced Medical Solutions 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..