Correlation Between Spirent Communications and SCANSOURCE

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

Diversification Opportunities for Spirent Communications and SCANSOURCE

0.66

Correlation Coefficient

Spirent Communications  SCANSOURCE

Poor diversification

The 3 months correlation between Spirent and SCANSOURCE is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and SCANSOURCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCANSOURCE 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 SCANSOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCANSOURCE has no effect on the direction of Spirent Communications i.e., Spirent Communications and SCANSOURCE go up and down completely randomly.

Pair Corralation between Spirent Communications and SCANSOURCE

Assuming the 90 days horizon Spirent Communications is expected to generate 1.35 times less return on investment than SCANSOURCE. But when comparing it to its historical volatility, Spirent Communications plc is 2.17 times less risky than SCANSOURCE. It trades about 0.11 of its potential returns per unit of risk. SCANSOURCE is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,260  in SCANSOURCE on September 30, 2024 and sell it today you would earn a total of  400.00  from holding SCANSOURCE or generate 9.39% return on investment over 90 days.

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

Spirent Communications plc  vs.  SCANSOURCE

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 uncertain basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SCANSOURCE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SCANSOURCE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SCANSOURCE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Spirent Communications and SCANSOURCE

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

The idea behind Spirent Communications plc and SCANSOURCE 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.