Correlation Between Arch Capital and Iridium Communications

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

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

Diversification Opportunities for Arch Capital and Iridium Communications

-0.21

Correlation Coefficient

Arch Capital  Iridium Communications

Very good diversification

The 3 months correlation between Arch and Iridium is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Arch Capital 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 Arch Capital 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 Arch Capital i.e., Arch Capital and Iridium Communications go up and down completely randomly.

Pair Corralation between Arch Capital and Iridium Communications

Assuming the 90 days horizon Arch Capital Group is expected to generate 0.52 times more return on investment than Iridium Communications. However, Arch Capital Group is 1.91 times less risky than Iridium Communications. It trades about 0.03 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.05 per unit of risk. If you would invest  8,506  in Arch Capital Group on December 19, 2024 and sell it today you would earn a total of  166.00  from holding Arch Capital Group or generate 1.95% return on investment over 90 days.

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

Arch Capital Group  vs.  Iridium Communications

Arch Capital Group

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Arch Capital is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Iridium Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Arch Capital and Iridium Communications

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

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.