Correlation Between Auto Trader and Iridium Communications
Can any of the company-specific risk be diversified away by investing in both Auto Trader and Iridium 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 Auto Trader and Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Auto Trader Group and Iridium Communications, you can compare the effects of market volatilities on Auto Trader and Iridium 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 Auto Trader with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Iridium Communications.
Diversification Opportunities for Auto Trader and Iridium Communications
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Auto and Iridium is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Auto Trader 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 Auto Trader Group are associated (or correlated) with Iridium Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iridium Communications has no effect on the direction of Auto Trader i.e., Auto Trader and Iridium Communications go up and down completely randomly.
Pair Corralation between Auto Trader and Iridium Communications
Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the Iridium Communications. But the stock apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 2.37 times less risky than Iridium Communications. The stock trades about -0.08 of its potential returns per unit of risk. The Iridium Communications is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 2,763 in Iridium Communications on December 28, 2024 and sell it today you would lose (104.00) from holding Iridium Communications or give up 3.76% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 98.41% |
Values | Daily Returns |
Auto Trader Group vs. Iridium Communications
Performance |
Timeline |
Auto Trader Group |
Iridium Communications |
Auto Trader and Iridium Communications Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Auto Trader and Iridium Communications
The main advantage of trading using opposite Auto Trader and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader position performs unexpectedly, Iridium 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 Iridium Communications will offset losses from the drop in Iridium Communications' long position.Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc |
Iridium Communications vs. T Mobile | Iridium Communications vs. ATT Inc | Iridium Communications vs. Deutsche Telekom AG | Iridium Communications vs. Deutsche Telekom AG |
Check out your portfolio center.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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