Correlation Between Iridium Communications and Teradyne

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

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

Diversification Opportunities for Iridium Communications and Teradyne

0.43

Correlation Coefficient

Iridium Communications  Teradyne

Very weak diversification

The 3 months correlation between Iridium and Teradyne is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Iridium Communications i.e., Iridium Communications and Teradyne go up and down completely randomly.

Pair Corralation between Iridium Communications and Teradyne

Given the investment horizon of 90 days Iridium Communications is expected to generate 1.06 times more return on investment than Teradyne. However, Iridium Communications is 1.06 times more volatile than Teradyne. It trades about 0.01 of its potential returns per unit of risk. Teradyne is currently generating about 0.0 per unit of risk. If you would invest  2,935  in Iridium Communications on September 25, 2024 and sell it today you would lose (13.00) from holding Iridium Communications or give up 0.44% 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.  Teradyne

Iridium Communications

Risk-Adjusted Performance

0 of 100

Very 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 current stock price disarray, may contribute to short-term losses for the investors.

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Teradyne is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Iridium Communications and Teradyne

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

The idea behind Iridium Communications and Teradyne 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.