Correlation Between Iridium Communications and SILICON LABORATOR

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

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

Diversification Opportunities for Iridium Communications and SILICON LABORATOR

0.62

Correlation Coefficient

Iridium Communications  SILICON LABORATOR

Poor diversification

The 3 months correlation between Iridium and SILICON is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and SILICON LABORATOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SILICON LABORATOR 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 SILICON LABORATOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SILICON LABORATOR has no effect on the direction of Iridium Communications i.e., Iridium Communications and SILICON LABORATOR go up and down completely randomly.

Pair Corralation between Iridium Communications and SILICON LABORATOR

Assuming the 90 days horizon Iridium Communications is expected to under-perform the SILICON LABORATOR. In addition to that, Iridium Communications is 1.09 times more volatile than SILICON LABORATOR. It trades about -0.04 of its total potential returns per unit of risk. SILICON LABORATOR is currently generating about -0.01 per unit of volatility. If you would invest  11,900  in SILICON LABORATOR on December 23, 2024 and sell it today you would lose (500.00) from holding SILICON LABORATOR or give up 4.2% of portfolio value over 90 days.

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

Iridium Communications  vs.  SILICON LABORATOR

Iridium Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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.

SILICON LABORATOR

Risk-Adjusted Performance

Very Weak

Over the last 90 days SILICON LABORATOR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SILICON LABORATOR is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Iridium Communications and SILICON LABORATOR

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

The idea behind Iridium Communications and SILICON LABORATOR 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 Transaction History module to view history of all your transactions and understand their impact on performance.