Correlation Between Sea and Iridium Communications

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

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

Diversification Opportunities for Sea and Iridium Communications

-0.13

Correlation Coefficient

Sea  Iridium Communications

Good diversification

The 3 months correlation between Sea and Iridium is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Sea 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 Sea 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 Sea i.e., Sea and Iridium Communications go up and down completely randomly.

Pair Corralation between Sea and Iridium Communications

Allowing for the 90-day total investment horizon Sea is expected to generate 0.95 times more return on investment than Iridium Communications. However, Sea is 1.05 times less risky than Iridium Communications. It trades about 0.18 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.01 per unit of risk. If you would invest  4,187  in Sea on October 2, 2024 and sell it today you would earn a total of  6,382  from holding Sea or generate 152.41% return on investment over 90 days.

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

Sea  vs.  Iridium Communications

Sea

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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

Pair Trading with Sea and Iridium Communications

The main advantage of trading using opposite Sea and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.