Correlation Between Iridium Communications and Western Digital

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

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

Diversification Opportunities for Iridium Communications and Western Digital

0.36

Correlation Coefficient

Iridium Communications  Western Digital

Weak diversification

The 3 months correlation between Iridium and Western is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of Iridium Communications i.e., Iridium Communications and Western Digital go up and down completely randomly.

Pair Corralation between Iridium Communications and Western Digital

Given the investment horizon of 90 days Iridium Communications is expected to generate 1.08 times more return on investment than Western Digital. However, Iridium Communications is 1.08 times more volatile than Western Digital. It trades about 0.03 of its potential returns per unit of risk. Western Digital is currently generating about -0.03 per unit of risk. If you would invest  2,882  in Iridium Communications on December 28, 2024 and sell it today you would earn a total of  66.00  from holding Iridium Communications or generate 2.29% return on investment over 90 days.

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

Iridium Communications  vs.  Western Digital

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.

Western Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Iridium Communications and Western Digital

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

The idea behind Iridium Communications and Western Digital 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.