Correlation Between LEVEL and Iridium Communications

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

By analyzing existing cross correlation between LEVEL 3 FING and Iridium Communications, you can compare the effects of market volatilities on LEVEL 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 LEVEL with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of LEVEL and Iridium Communications.

Diversification Opportunities for LEVEL and Iridium Communications

0.07

Correlation Coefficient

LEVEL  Iridium Communications

Significant diversification

The 3 months correlation between LEVEL and Iridium is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding LEVEL 3 FING and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and LEVEL 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 LEVEL 3 FING 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 LEVEL i.e., LEVEL and Iridium Communications go up and down completely randomly.

Pair Corralation between LEVEL and Iridium Communications

Assuming the 90 days trading horizon LEVEL 3 FING is expected to generate 3.87 times more return on investment than Iridium Communications. However, LEVEL is 3.87 times more volatile than Iridium Communications. It trades about 0.03 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.04 per unit of risk. If you would invest  6,275  in LEVEL 3 FING on October 20, 2024 and sell it today you would lose (675.00) from holding LEVEL 3 FING or give up 10.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	79.81%
Values	Daily Returns

LEVEL 3 FING  vs.  Iridium Communications

LEVEL 3 FING

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LEVEL 3 FING has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for LEVEL 3 FING 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 LEVEL and Iridium Communications

The main advantage of trading using opposite LEVEL and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LEVEL 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 LEVEL 3 FING 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.