Correlation Between Spectra Systems and InterContinental

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

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

Diversification Opportunities for Spectra Systems and InterContinental

-0.27

Correlation Coefficient

Spectra Systems  InterContinental

Very good diversification

The 3 months correlation between Spectra and InterContinental is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Spectra Systems Corp and InterContinental Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterContinental Hotels and Spectra Systems 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 Spectra Systems Corp are associated (or correlated) with InterContinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterContinental Hotels has no effect on the direction of Spectra Systems i.e., Spectra Systems and InterContinental go up and down completely randomly.

Pair Corralation between Spectra Systems and InterContinental

Assuming the 90 days trading horizon Spectra Systems Corp is expected to under-perform the InterContinental. In addition to that, Spectra Systems is 1.91 times more volatile than InterContinental Hotels Group. It trades about 0.0 of its total potential returns per unit of risk. InterContinental Hotels Group is currently generating about 0.3 per unit of volatility. If you would invest  813,600  in InterContinental Hotels Group on September 28, 2024 and sell it today you would earn a total of  186,900  from holding InterContinental Hotels Group or generate 22.97% return on investment over 90 days.

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

Spectra Systems Corp  vs.  InterContinental Hotels Group

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

InterContinental Hotels

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, InterContinental exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spectra Systems and InterContinental

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

The idea behind Spectra Systems Corp and InterContinental Hotels Group 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 Transaction History module to view history of all your transactions and understand their impact on performance.