Correlation Between GigaMedia and Iridium Communications
Can any of the company-specific risk be diversified away by investing in both GigaMedia 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 GigaMedia and Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GigaMedia and Iridium Communications, you can compare the effects of market volatilities on GigaMedia 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 GigaMedia with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of GigaMedia and Iridium Communications.
Diversification Opportunities for GigaMedia and Iridium Communications
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GigaMedia and Iridium is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding GigaMedia and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and GigaMedia 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 GigaMedia 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 GigaMedia i.e., GigaMedia and Iridium Communications go up and down completely randomly.
Pair Corralation between GigaMedia and Iridium Communications
Assuming the 90 days trading horizon GigaMedia is expected to generate 1.66 times more return on investment than Iridium Communications. However, GigaMedia is 1.66 times more volatile than Iridium Communications. It trades about 0.08 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.05 per unit of risk. If you would invest 140.00 in GigaMedia on October 28, 2024 and sell it today you would earn a total of 6.00 from holding GigaMedia or generate 4.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GigaMedia vs. Iridium Communications
Performance |
| Timeline |
| GigaMedia |
| Iridium Communications |
GigaMedia and Iridium Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GigaMedia and Iridium Communications
The main advantage of trading using opposite GigaMedia and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GigaMedia 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 GigaMedia 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.| Iridium Communications vs. T Mobile | Iridium Communications vs. China Mobile Limited | Iridium Communications vs. Verizon Communications | Iridium Communications vs. ATT 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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