Correlation Between Spirent Communications and INTERSHOP Communications

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

Diversification Opportunities for Spirent Communications and INTERSHOP Communications

-0.1

Correlation Coefficient

Spirent Communications  INTERSHOP Communications

Good diversification

The 3 months correlation between Spirent and INTERSHOP is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and INTERSHOP Communications Aktie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERSHOP Communications 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 INTERSHOP Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERSHOP Communications has no effect on the direction of Spirent Communications i.e., Spirent Communications and INTERSHOP Communications go up and down completely randomly.

Pair Corralation between Spirent Communications and INTERSHOP Communications

Assuming the 90 days horizon Spirent Communications is expected to generate 19.48 times less return on investment than INTERSHOP Communications. But when comparing it to its historical volatility, Spirent Communications plc is 2.7 times less risky than INTERSHOP Communications. It trades about 0.0 of its potential returns per unit of risk. INTERSHOP Communications Aktiengesellschaft is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  179.00  in INTERSHOP Communications Aktiengesellschaft on September 3, 2024 and sell it today you would earn a total of  6.00  from holding INTERSHOP Communications Aktiengesellschaft or generate 3.35% 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.  INTERSHOP Communications Aktie

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

INTERSHOP Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in INTERSHOP Communications Aktiengesellschaft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, INTERSHOP Communications is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Spirent Communications and INTERSHOP Communications

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

The idea behind Spirent Communications plc and INTERSHOP Communications Aktiengesellschaft 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.