Correlation Between Appen and Spectra7 Microsystems

Can any of the company-specific risk be diversified away by investing in both Appen and Spectra7 Microsystems 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 Appen and Spectra7 Microsystems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Appen Limited and Spectra7 Microsystems, you can compare the effects of market volatilities on Appen and Spectra7 Microsystems 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 Appen with a short position of Spectra7 Microsystems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Appen and Spectra7 Microsystems.

Diversification Opportunities for Appen and Spectra7 Microsystems

0.02

Correlation Coefficient

Appen  Spectra7 Microsystems

Significant diversification

The 3 months correlation between Appen and Spectra7 is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Appen Limited and Spectra7 Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectra7 Microsystems and Appen 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 Appen Limited are associated (or correlated) with Spectra7 Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectra7 Microsystems has no effect on the direction of Appen i.e., Appen and Spectra7 Microsystems go up and down completely randomly.

Pair Corralation between Appen and Spectra7 Microsystems

Assuming the 90 days horizon Appen Limited is expected to generate 0.55 times more return on investment than Spectra7 Microsystems. However, Appen Limited is 1.83 times less risky than Spectra7 Microsystems. It trades about -0.02 of its potential returns per unit of risk. Spectra7 Microsystems is currently generating about -0.12 per unit of risk. If you would invest  71.00  in Appen Limited on September 26, 2024 and sell it today you would lose (5.00) from holding Appen Limited or give up 7.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Appen Limited  vs.  Spectra7 Microsystems

Appen Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Appen Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Appen may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Spectra7 Microsystems

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spectra7 Microsystems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Spectra7 Microsystems reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Appen and Spectra7 Microsystems

The main advantage of trading using opposite Appen and Spectra7 Microsystems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Appen position performs unexpectedly, Spectra7 Microsystems 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 Spectra7 Microsystems will offset losses from the drop in Spectra7 Microsystems' long position.

The idea behind Appen Limited and Spectra7 Microsystems 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.