Correlation Between Iridium Communications and Sims Metal
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and Sims Metal 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 Iridium Communications and Sims Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and Sims Metal Management, you can compare the effects of market volatilities on Iridium Communications and Sims Metal 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 Iridium Communications with a short position of Sims Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and Sims Metal.
Diversification Opportunities for Iridium Communications and Sims Metal
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Iridium and Sims is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Sims Metal Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sims Metal Management and Iridium Communications 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 Iridium Communications are associated (or correlated) with Sims Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sims Metal Management has no effect on the direction of Iridium Communications i.e., Iridium Communications and Sims Metal go up and down completely randomly.
Pair Corralation between Iridium Communications and Sims Metal
Assuming the 90 days horizon Iridium Communications is expected to generate 1.07 times more return on investment than Sims Metal. However, Iridium Communications is 1.07 times more volatile than Sims Metal Management. It trades about 0.08 of its potential returns per unit of risk. Sims Metal Management is currently generating about 0.08 per unit of risk. If you would invest 2,737 in Iridium Communications on August 30, 2024 and sell it today you would earn a total of 111.00 from holding Iridium Communications or generate 4.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. Sims Metal Management
Performance |
| Timeline |
| Iridium Communications |
| Sims Metal Management |
Iridium Communications and Sims Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and Sims Metal
The main advantage of trading using opposite Iridium Communications and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, Sims Metal 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 Sims Metal will offset losses from the drop in Sims Metal's long position.| Iridium Communications vs. SPORT LISBOA E | Iridium Communications vs. SBA Communications Corp | Iridium Communications vs. BII Railway Transportation | Iridium Communications vs. PARKEN Sport Entertainment |
| Sims Metal vs. PSI Software AG | Sims Metal vs. MAGIC SOFTWARE ENTR | Sims Metal vs. BII Railway Transportation | Sims Metal vs. ATOSS SOFTWARE |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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