Correlation Between Sims Metal and Iridium Communications
Can any of the company-specific risk be diversified away by investing in both Sims Metal 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 Sims Metal and Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sims Metal Management and Iridium Communications, you can compare the effects of market volatilities on Sims Metal 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 Sims Metal with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and Iridium Communications.
Diversification Opportunities for Sims Metal and Iridium Communications
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sims and Iridium is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Sims Metal 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 Sims Metal Management 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 Sims Metal i.e., Sims Metal and Iridium Communications go up and down completely randomly.
Pair Corralation between Sims Metal and Iridium Communications
Assuming the 90 days horizon Sims Metal is expected to generate 1.06 times less return on investment than Iridium Communications. But when comparing it to its historical volatility, Sims Metal Management is 1.07 times less risky than Iridium Communications. It trades about 0.08 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.08 of returns per unit of risk over similar time horizon. 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 |
Sims Metal Management vs. Iridium Communications
Performance |
| Timeline |
| Sims Metal Management |
| Iridium Communications |
Sims Metal and Iridium Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sims Metal and Iridium Communications
The main advantage of trading using opposite Sims Metal and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims Metal 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.| Sims Metal vs. PSI Software AG | Sims Metal vs. MAGIC SOFTWARE ENTR | Sims Metal vs. BII Railway Transportation | Sims Metal vs. ATOSS SOFTWARE |
| Iridium Communications vs. SPORT LISBOA E | Iridium Communications vs. SBA Communications Corp | Iridium Communications vs. BII Railway Transportation | Iridium Communications vs. PARKEN Sport Entertainment |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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