Correlation Between Spirent Communications and Vale SA

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

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

Diversification Opportunities for Spirent Communications and Vale SA

-0.16

Correlation Coefficient

Spirent Communications  Vale SA

Good diversification

The 3 months correlation between Spirent and Vale is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Spirent Communications 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 Spirent Communications plc are associated (or correlated) with Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Spirent Communications i.e., Spirent Communications and Vale SA go up and down completely randomly.

Pair Corralation between Spirent Communications and Vale SA

Assuming the 90 days horizon Spirent Communications is expected to generate 8.33 times less return on investment than Vale SA. But when comparing it to its historical volatility, Spirent Communications plc is 2.42 times less risky than Vale SA. It trades about 0.0 of its potential returns per unit of risk. Vale SA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  902.00  in Vale SA on September 4, 2024 and sell it today you would earn a total of  6.00  from holding Vale SA or generate 0.67% return on investment over 90 days.

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

Spirent Communications plc  vs.  Vale SA

Spirent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirent Communications plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Spirent Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vale SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Vale SA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Spirent Communications and Vale SA

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

The idea behind Spirent Communications plc and Vale SA 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.