Correlation Between CAVA Group, and Iridium Communications

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

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

Diversification Opportunities for CAVA Group, and Iridium Communications

0.25

Correlation Coefficient

CAVA Group,  Iridium Communications

Modest diversification

The 3 months correlation between CAVA and Iridium is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding CAVA Group, and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and CAVA Group, 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 CAVA Group, 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 CAVA Group, i.e., CAVA Group, and Iridium Communications go up and down completely randomly.

Pair Corralation between CAVA Group, and Iridium Communications

Given the investment horizon of 90 days CAVA Group, is expected to generate 1.26 times more return on investment than Iridium Communications. However, CAVA Group, is 1.26 times more volatile than Iridium Communications. It trades about 0.16 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.06 per unit of risk. If you would invest  11,649  in CAVA Group, on October 26, 2024 and sell it today you would earn a total of  752.00  from holding CAVA Group, or generate 6.46% return on investment over 90 days.

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

CAVA Group,  vs.  Iridium Communications

CAVA Group,

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAVA Group, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Iridium Communications

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Iridium Communications is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CAVA Group, and Iridium Communications

The main advantage of trading using opposite CAVA Group, and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAVA Group, 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 CAVA Group, 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.