Correlation Between Iridium Communications and Principal Financial

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

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

Diversification Opportunities for Iridium Communications and Principal Financial

0.46

Correlation Coefficient

Iridium Communications  Principal Financial

Very weak diversification

The 3 months correlation between Iridium and Principal is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial 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 Principal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Financial has no effect on the direction of Iridium Communications i.e., Iridium Communications and Principal Financial go up and down completely randomly.

Pair Corralation between Iridium Communications and Principal Financial

Assuming the 90 days horizon Iridium Communications is expected to under-perform the Principal Financial. In addition to that, Iridium Communications is 1.83 times more volatile than Principal Financial Group. It trades about -0.04 of its total potential returns per unit of risk. Principal Financial Group is currently generating about 0.05 per unit of volatility. If you would invest  7,333  in Principal Financial Group on December 23, 2024 and sell it today you would earn a total of  317.00  from holding Principal Financial Group or generate 4.32% return on investment over 90 days.

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

Iridium Communications  vs.  Principal Financial Group

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.

Principal Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Principal Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Iridium Communications and Principal Financial

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

The idea behind Iridium Communications and Principal Financial Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.