Correlation Between Iridium Communications and M/I Homes

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Can any of the company-specific risk be diversified away by investing in both Iridium Communications and M/I Homes 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 M/I Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and MI Homes, you can compare the effects of market volatilities on Iridium Communications and M/I Homes 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 M/I Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and M/I Homes.

Diversification Opportunities for Iridium Communications and M/I Homes

IridiumM/IDiversified AwayIridiumM/IDiversified Away100%
0.37
  Correlation Coefficient

Weak diversification

The 3 months correlation between Iridium and M/I is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M/I Homes 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 M/I Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M/I Homes has no effect on the direction of Iridium Communications i.e., Iridium Communications and M/I Homes go up and down completely randomly.

Pair Corralation between Iridium Communications and M/I Homes

Assuming the 90 days horizon Iridium Communications is expected to generate 1.31 times more return on investment than M/I Homes. However, Iridium Communications is 1.31 times more volatile than MI Homes. It trades about 0.04 of its potential returns per unit of risk. MI Homes is currently generating about -0.06 per unit of risk. If you would invest  2,637  in Iridium Communications on September 26, 2024 and sell it today you would earn a total of  157.00  from holding Iridium Communications or generate 5.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Iridium Communications  vs.  MI Homes

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -10-505101520
JavaScript chart by amCharts 3.21.156IC 4MI
       Timeline  
Iridium Communications 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Iridium Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec262728293031
M/I Homes 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec130135140145150155160

Iridium Communications and M/I Homes Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.72-7.28-4.84-2.40.02.464.977.479.98 0.010.020.030.040.050.060.07
JavaScript chart by amCharts 3.21.156IC 4MI
       Returns  

Pair Trading with Iridium Communications and M/I Homes

The main advantage of trading using opposite Iridium Communications and M/I Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, M/I Homes 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 M/I Homes will offset losses from the drop in M/I Homes' long position.
The idea behind Iridium Communications and MI Homes 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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