Correlation Between Iridium Communications and LG Electronics
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and LG Electronics 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 LG Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and LG Electronics, you can compare the effects of market volatilities on Iridium Communications and LG Electronics 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 LG Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and LG Electronics.
Diversification Opportunities for Iridium Communications and LG Electronics
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Iridium and LGLG is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and LG Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Electronics 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 LG Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Electronics has no effect on the direction of Iridium Communications i.e., Iridium Communications and LG Electronics go up and down completely randomly.
Pair Corralation between Iridium Communications and LG Electronics
Assuming the 90 days horizon Iridium Communications is expected to generate 1.1 times more return on investment than LG Electronics. However, Iridium Communications is 1.1 times more volatile than LG Electronics. It trades about 0.01 of its potential returns per unit of risk. LG Electronics is currently generating about 0.0 per unit of risk. If you would invest 2,872 in Iridium Communications on September 24, 2024 and sell it today you would lose (37.00) from holding Iridium Communications or give up 1.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. LG Electronics
Performance |
| Timeline |
| Iridium Communications |
| LG Electronics |
Iridium Communications and LG Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and LG Electronics
The main advantage of trading using opposite Iridium Communications and LG Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, LG Electronics 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 LG Electronics will offset losses from the drop in LG Electronics' long position.| Iridium Communications vs. T Mobile | Iridium Communications vs. China Mobile Limited | Iridium Communications vs. Verizon Communications | Iridium Communications vs. ATT Inc |
| LG Electronics vs. Apple Inc | LG Electronics vs. Apple Inc | LG Electronics vs. Apple Inc | LG Electronics vs. Apple Inc |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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