Correlation Between Valens and Iridium Communications

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

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

Diversification Opportunities for Valens and Iridium Communications

0.09

Correlation Coefficient

Valens  Iridium Communications

Significant diversification

The 3 months correlation between Valens and Iridium is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Valens and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Valens 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 Valens 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 Valens i.e., Valens and Iridium Communications go up and down completely randomly.

Pair Corralation between Valens and Iridium Communications

Considering the 90-day investment horizon Valens is expected to under-perform the Iridium Communications. In addition to that, Valens is 3.15 times more volatile than Iridium Communications. It trades about -0.04 of its total potential returns per unit of risk. Iridium Communications is currently generating about 0.16 per unit of volatility. If you would invest  2,778  in Iridium Communications on September 21, 2024 and sell it today you would earn a total of  172.00  from holding Iridium Communications or generate 6.19% return on investment over 90 days.

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

Valens  vs.  Iridium Communications

Valens

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valens has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Iridium Communications

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 1 (%) 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.

Pair Trading with Valens and Iridium Communications

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

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.