Correlation Between American Public and Iridium Communications

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

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

Diversification Opportunities for American Public and Iridium Communications

0.35

Correlation Coefficient

American Public  Iridium Communications

Weak diversification

The 3 months correlation between American and Iridium is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and American Public 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 American Public Education 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 American Public i.e., American Public and Iridium Communications go up and down completely randomly.

Pair Corralation between American Public and Iridium Communications

Assuming the 90 days horizon American Public Education is expected to generate 1.3 times more return on investment than Iridium Communications. However, American Public is 1.3 times more volatile than Iridium Communications. It trades about 0.12 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.01 per unit of risk. If you would invest  1,960  in American Public Education on October 3, 2024 and sell it today you would earn a total of  100.00  from holding American Public Education or generate 5.1% return on investment over 90 days.

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

American Public Education  vs.  Iridium Communications

American Public Education

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

Iridium Communications

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Iridium Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Public and Iridium Communications

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

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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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.