Correlation Between Iridium Communications and Catalent

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

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

Diversification Opportunities for Iridium Communications and Catalent

0.38

Correlation Coefficient

Iridium Communications  Catalent

Weak diversification

The 3 months correlation between Iridium and Catalent is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Catalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalent and Iridium 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 Iridium Communications are associated (or correlated) with Catalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalent has no effect on the direction of Iridium Communications i.e., Iridium Communications and Catalent go up and down completely randomly.

Pair Corralation between Iridium Communications and Catalent

Assuming the 90 days horizon Iridium Communications is expected to under-perform the Catalent. But the stock apears to be less risky and, when comparing its historical volatility, Iridium Communications is 1.34 times less risky than Catalent. The stock trades about -0.04 of its potential returns per unit of risk. The Catalent is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,502  in Catalent on October 4, 2024 and sell it today you would earn a total of  1,491  from holding Catalent or generate 33.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.0%
Values	Daily Returns

Iridium Communications  vs.  Catalent

Iridium Communications

Risk-Adjusted Performance

0 of 100

Very 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.

Catalent

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Catalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Catalent may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Iridium Communications and Catalent

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

The idea behind Iridium Communications and Catalent 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.