Correlation Between National Beverage and Iridium Communications

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

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

Diversification Opportunities for National Beverage and Iridium Communications

-0.23

Correlation Coefficient

National Beverage  Iridium Communications

Very good diversification

The 3 months correlation between National and Iridium is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and National Beverage 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 National Beverage 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 National Beverage i.e., National Beverage and Iridium Communications go up and down completely randomly.

Pair Corralation between National Beverage and Iridium Communications

Given the investment horizon of 90 days National Beverage Corp is expected to under-perform the Iridium Communications. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 1.92 times less risky than Iridium Communications. The stock trades about -0.06 of its potential returns per unit of risk. The Iridium Communications is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,891  in Iridium Communications on December 27, 2024 and sell it today you would earn a total of  63.00  from holding Iridium Communications or generate 2.18% return on investment over 90 days.

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

National Beverage Corp  vs.  Iridium Communications

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, National Beverage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Iridium Communications

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 National Beverage and Iridium Communications

The main advantage of trading using opposite National Beverage and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.