Correlation Between Iridium Communications and CARSALES

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

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

Diversification Opportunities for Iridium Communications and CARSALES

0.4

Correlation Coefficient

Iridium Communications  CARSALES

Very weak diversification

The 3 months correlation between Iridium and CARSALES is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM 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 CARSALES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of Iridium Communications i.e., Iridium Communications and CARSALES go up and down completely randomly.

Pair Corralation between Iridium Communications and CARSALES

Assuming the 90 days horizon Iridium Communications is expected to generate 1.69 times more return on investment than CARSALES. However, Iridium Communications is 1.69 times more volatile than CARSALESCOM. It trades about -0.04 of its potential returns per unit of risk. CARSALESCOM is currently generating about -0.1 per unit of risk. If you would invest  2,751  in Iridium Communications on December 25, 2024 and sell it today you would lose (236.00) from holding Iridium Communications or give up 8.58% of portfolio value over 90 days.

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

Iridium Communications  vs.  CARSALESCOM

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.

CARSALESCOM

Risk-Adjusted Performance

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Iridium Communications and CARSALES

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

The idea behind Iridium Communications and CARSALESCOM 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.