Correlation Between Iridium Communications and Smurfit Kappa

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

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

Diversification Opportunities for Iridium Communications and Smurfit Kappa

0.3

Correlation Coefficient

Iridium Communications  Smurfit Kappa

Weak diversification

The 3 months correlation between Iridium and Smurfit is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Smurfit Kappa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smurfit Kappa Group 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 Smurfit Kappa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smurfit Kappa Group has no effect on the direction of Iridium Communications i.e., Iridium Communications and Smurfit Kappa go up and down completely randomly.

Pair Corralation between Iridium Communications and Smurfit Kappa

Assuming the 90 days horizon Iridium Communications is expected to generate 1.07 times less return on investment than Smurfit Kappa. In addition to that, Iridium Communications is 1.06 times more volatile than Smurfit Kappa Group. It trades about 0.08 of its total potential returns per unit of risk. Smurfit Kappa Group is currently generating about 0.09 per unit of volatility. If you would invest  4,844  in Smurfit Kappa Group on October 7, 2024 and sell it today you would earn a total of  326.00  from holding Smurfit Kappa Group or generate 6.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.44%
Values	Daily Returns

Iridium Communications  vs.  Smurfit Kappa Group

Iridium Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 4 (%) 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 February 2025.

Smurfit Kappa Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smurfit Kappa Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Smurfit Kappa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iridium Communications and Smurfit Kappa

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

The idea behind Iridium Communications and Smurfit Kappa 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.