Correlation Between InPlay Oil and Iridium Communications

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

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

Diversification Opportunities for InPlay Oil and Iridium Communications

-0.24

Correlation Coefficient

InPlay Oil  Iridium Communications

Very good diversification

The 3 months correlation between InPlay and Iridium is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding InPlay Oil Corp and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and InPlay Oil 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 InPlay Oil Corp are associated (or correlated) with Iridium Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iridium Communications has no effect on the direction of InPlay Oil i.e., InPlay Oil and Iridium Communications go up and down completely randomly.

Pair Corralation between InPlay Oil and Iridium Communications

Assuming the 90 days trading horizon InPlay Oil is expected to generate 8.19 times less return on investment than Iridium Communications. In addition to that, InPlay Oil is 1.29 times more volatile than Iridium Communications. It trades about 0.01 of its total potential returns per unit of risk. Iridium Communications is currently generating about 0.08 per unit of volatility. If you would invest  2,757  in Iridium Communications on October 7, 2024 and sell it today you would earn a total of  173.00  from holding Iridium Communications or generate 6.27% return on investment over 90 days.

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

InPlay Oil Corp  vs.  Iridium Communications

InPlay Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InPlay Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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.

Pair Trading with InPlay Oil and Iridium Communications

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

The idea behind InPlay Oil Corp and Iridium Communications 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.