Correlation Between Spirent Communications and Universal Display

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

Diversification Opportunities for Spirent Communications and Universal Display

0.2

Correlation Coefficient

Spirent Communications  Universal Display

Modest diversification

The 3 months correlation between Spirent and Universal is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Universal Display Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display Corp 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 Universal Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Display Corp has no effect on the direction of Spirent Communications i.e., Spirent Communications and Universal Display go up and down completely randomly.

Pair Corralation between Spirent Communications and Universal Display

Assuming the 90 days trading horizon Spirent Communications plc is expected to generate 0.25 times more return on investment than Universal Display. However, Spirent Communications plc is 4.04 times less risky than Universal Display. It trades about -0.06 of its potential returns per unit of risk. Universal Display Corp is currently generating about -0.04 per unit of risk. If you would invest  17,600  in Spirent Communications plc on September 3, 2024 and sell it today you would lose (470.00) from holding Spirent Communications plc or give up 2.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Spirent Communications plc  vs.  Universal Display Corp

Spirent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirent Communications plc has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Universal Display Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Spirent Communications and Universal Display

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

The idea behind Spirent Communications plc and Universal Display 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.