Correlation Between DXC Technology and Iridium Communications

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

By analyzing existing cross correlation between DXC Technology Co and Iridium Communications, you can compare the effects of market volatilities on DXC Technology 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 DXC Technology with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of DXC Technology and Iridium Communications.

Diversification Opportunities for DXC Technology and Iridium Communications

0.41

Correlation Coefficient

DXC Technology  Iridium Communications

Very weak diversification

The 3 months correlation between DXC and Iridium is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding DXC Technology Co and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and DXC Technology 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 DXC Technology Co 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 DXC Technology i.e., DXC Technology and Iridium Communications go up and down completely randomly.

Pair Corralation between DXC Technology and Iridium Communications

Assuming the 90 days trading horizon DXC Technology Co is expected to generate 0.9 times more return on investment than Iridium Communications. However, DXC Technology Co is 1.11 times less risky than Iridium Communications. It trades about 0.01 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.02 per unit of risk. If you would invest  2,052  in DXC Technology Co on September 20, 2024 and sell it today you would lose (64.00) from holding DXC Technology Co or give up 3.12% of portfolio value over 90 days.

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

DXC Technology Co  vs.  Iridium Communications

DXC Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DXC Technology Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DXC Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Iridium Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Iridium Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DXC Technology and Iridium Communications

The main advantage of trading using opposite DXC Technology and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DXC Technology 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.

The idea behind DXC Technology Co and Iridium Communications 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.