Correlation Between Spirent Communications and Corporate Office

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

Diversification Opportunities for Spirent Communications and Corporate Office

0.47

Correlation Coefficient

Spirent Communications  Corporate Office

Very weak diversification

The 3 months correlation between Spirent and Corporate is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Corporate Office Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporate Office Pro 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 Corporate Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporate Office Pro has no effect on the direction of Spirent Communications i.e., Spirent Communications and Corporate Office go up and down completely randomly.

Pair Corralation between Spirent Communications and Corporate Office

Assuming the 90 days horizon Spirent Communications is expected to generate 1.06 times less return on investment than Corporate Office. But when comparing it to its historical volatility, Spirent Communications plc is 1.03 times less risky than Corporate Office. It trades about 0.1 of its potential returns per unit of risk. Corporate Office Properties is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,760  in Corporate Office Properties on October 1, 2024 and sell it today you would earn a total of  200.00  from holding Corporate Office Properties or generate 7.25% return on investment over 90 days.

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

Spirent Communications plc  vs.  Corporate Office Properties

Spirent Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Corporate Office Pro

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Corporate Office Properties are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Corporate Office may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Spirent Communications and Corporate Office

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

The idea behind Spirent Communications plc and Corporate Office Properties 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.