Correlation Between Alfa Financial and Iridium Communications

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

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

Diversification Opportunities for Alfa Financial and Iridium Communications

0.19

Correlation Coefficient

Alfa Financial  Iridium Communications

Average diversification

The 3 months correlation between Alfa and Iridium is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Iridium Communications go up and down completely randomly.

Pair Corralation between Alfa Financial and Iridium Communications

Assuming the 90 days trading horizon Alfa Financial is expected to generate 1.96 times less return on investment than Iridium Communications. But when comparing it to its historical volatility, Alfa Financial Software is 1.71 times less risky than Iridium Communications. It trades about 0.11 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,351  in Iridium Communications on September 13, 2024 and sell it today you would earn a total of  623.00  from holding Iridium Communications or generate 26.5% return on investment over 90 days.

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

Alfa Financial Software  vs.  Iridium Communications

Alfa Financial Software

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Iridium Communications

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Alfa Financial and Iridium Communications

The main advantage of trading using opposite Alfa Financial and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.