Correlation Between CAPITAL and Iridium Communications

Can any of the company-specific risk be diversified away by investing in both 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 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 CAPITAL ONE FINANCIAL and Iridium Communications, you can compare the effects of market volatilities on 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 CAPITAL with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAPITAL and Iridium Communications.

Diversification Opportunities for CAPITAL and Iridium Communications

0.17

Correlation Coefficient

CAPITAL  Iridium Communications

Average diversification

The 3 months correlation between CAPITAL and Iridium is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding CAPITAL ONE FINANCIAL and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and 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 CAPITAL ONE FINANCIAL 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 CAPITAL i.e., CAPITAL and Iridium Communications go up and down completely randomly.

Pair Corralation between CAPITAL and Iridium Communications

Assuming the 90 days trading horizon CAPITAL ONE FINANCIAL is expected to under-perform the Iridium Communications. But the bond apears to be less risky and, when comparing its historical volatility, CAPITAL ONE FINANCIAL is 4.28 times less risky than Iridium Communications. The bond trades about -0.12 of its potential returns per unit of risk. The Iridium Communications is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,939  in Iridium Communications on October 24, 2024 and sell it today you would lose (123.00) from holding Iridium Communications or give up 4.19% of portfolio value over 90 days.

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

CAPITAL ONE FINANCIAL  vs.  Iridium Communications

CAPITAL ONE FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAPITAL ONE FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CAPITAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 CAPITAL and Iridium Communications

The main advantage of trading using opposite CAPITAL and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 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 CAPITAL ONE FINANCIAL 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.