Correlation Between Iridium Communications and GAMESTOP

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

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

Diversification Opportunities for Iridium Communications and GAMESTOP

0.38

Correlation Coefficient

Iridium Communications  GAMESTOP

Weak diversification

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

Pair Corralation between Iridium Communications and GAMESTOP

Assuming the 90 days horizon Iridium Communications is expected to under-perform the GAMESTOP. But the stock apears to be less risky and, when comparing its historical volatility, Iridium Communications is 3.12 times less risky than GAMESTOP. The stock trades about -0.03 of its potential returns per unit of risk. The GAMESTOP is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,705  in GAMESTOP on September 20, 2024 and sell it today you would earn a total of  1,285  from holding GAMESTOP or generate 75.37% return on investment over 90 days.

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

Iridium Communications  vs.  GAMESTOP

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.

GAMESTOP

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GAMESTOP are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, GAMESTOP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iridium Communications and GAMESTOP

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

The idea behind Iridium Communications and GAMESTOP 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.