Correlation Between Spirent Communications and GALP ENERGIA

Can any of the company-specific risk be diversified away by investing in both Spirent Communications and GALP ENERGIA 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 GALP ENERGIA 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 GALP ENERGIA B , you can compare the effects of market volatilities on Spirent Communications and GALP ENERGIA 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 GALP ENERGIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and GALP ENERGIA.

Diversification Opportunities for Spirent Communications and GALP ENERGIA

0.04

Correlation Coefficient

Spirent Communications  GALP ENERGIA

Significant diversification

The 3 months correlation between Spirent and GALP is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and GALP ENERGIA B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GALP ENERGIA B 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 GALP ENERGIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GALP ENERGIA B has no effect on the direction of Spirent Communications i.e., Spirent Communications and GALP ENERGIA go up and down completely randomly.

Pair Corralation between Spirent Communications and GALP ENERGIA

Assuming the 90 days horizon Spirent Communications is expected to generate 1.23 times less return on investment than GALP ENERGIA. But when comparing it to its historical volatility, Spirent Communications plc is 1.45 times less risky than GALP ENERGIA. It trades about 0.21 of its potential returns per unit of risk. GALP ENERGIA B is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,559  in GALP ENERGIA B on September 22, 2024 and sell it today you would earn a total of  92.00  from holding GALP ENERGIA B or generate 5.9% return on investment over 90 days.

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

Spirent Communications plc  vs.  GALP ENERGIA B

Spirent Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 8 (%) 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 January 2025.

GALP ENERGIA B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GALP ENERGIA B has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, GALP ENERGIA is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Spirent Communications and GALP ENERGIA

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

The idea behind Spirent Communications plc and GALP ENERGIA B 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.