Correlation Between GB Group and Spectra Systems

Can any of the company-specific risk be diversified away by investing in both GB Group and Spectra Systems 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 GB Group and Spectra Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GB Group plc and Spectra Systems Corp, you can compare the effects of market volatilities on GB Group and Spectra Systems 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 GB Group with a short position of Spectra Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of GB Group and Spectra Systems.

Diversification Opportunities for GB Group and Spectra Systems

-0.13

Correlation Coefficient

GB Group  Spectra Systems

Good diversification

The 3 months correlation between GBG and Spectra is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding GB Group plc and Spectra Systems Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectra Systems Corp and GB Group 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 GB Group plc are associated (or correlated) with Spectra Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectra Systems Corp has no effect on the direction of GB Group i.e., GB Group and Spectra Systems go up and down completely randomly.

Pair Corralation between GB Group and Spectra Systems

Assuming the 90 days trading horizon GB Group plc is expected to generate 1.24 times more return on investment than Spectra Systems. However, GB Group is 1.24 times more volatile than Spectra Systems Corp. It trades about 0.07 of its potential returns per unit of risk. Spectra Systems Corp is currently generating about -0.02 per unit of risk. If you would invest  31,260  in GB Group plc on September 23, 2024 and sell it today you would earn a total of  3,260  from holding GB Group plc or generate 10.43% return on investment over 90 days.

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

GB Group plc  vs.  Spectra Systems Corp

GB Group plc

Risk-Adjusted Performance

5 of 100

Modest

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

Spectra Systems Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spectra Systems Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Spectra Systems is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GB Group and Spectra Systems

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

The idea behind GB Group plc and Spectra Systems Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.