Correlation Between Fair Oaks and Spirent Communications

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

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

Diversification Opportunities for Fair Oaks and Spirent Communications

0.67

Correlation Coefficient

Fair Oaks  Spirent Communications

Poor diversification

The 3 months correlation between Fair and Spirent is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Fair Oaks Income and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications and Fair Oaks 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 Fair Oaks Income are associated (or correlated) with Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of Fair Oaks i.e., Fair Oaks and Spirent Communications go up and down completely randomly.

Pair Corralation between Fair Oaks and Spirent Communications

Assuming the 90 days trading horizon Fair Oaks Income is expected to generate 0.53 times more return on investment than Spirent Communications. However, Fair Oaks Income is 1.88 times less risky than Spirent Communications. It trades about 0.12 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.06 per unit of risk. If you would invest  55.00  in Fair Oaks Income on September 25, 2024 and sell it today you would earn a total of  2.00  from holding Fair Oaks Income or generate 3.64% return on investment over 90 days.

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

Fair Oaks Income  vs.  Spirent Communications plc

Fair Oaks Income

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fair Oaks Income are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fair Oaks is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Spirent Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Spirent 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 Fair Oaks and Spirent Communications

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

The idea behind Fair Oaks Income and Spirent Communications plc 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.