Correlation Between GMO Internet and Iridium Communications
Can any of the company-specific risk be diversified away by investing in both GMO Internet 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 GMO Internet and Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMO Internet and Iridium Communications, you can compare the effects of market volatilities on GMO Internet 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 GMO Internet with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and Iridium Communications.
Diversification Opportunities for GMO Internet and Iridium Communications
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GMO and Iridium is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and GMO Internet 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 GMO Internet 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 GMO Internet i.e., GMO Internet and Iridium Communications go up and down completely randomly.
Pair Corralation between GMO Internet and Iridium Communications
Assuming the 90 days horizon GMO Internet is expected to generate 0.62 times more return on investment than Iridium Communications. However, GMO Internet is 1.6 times less risky than Iridium Communications. It trades about 0.06 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.04 per unit of risk. If you would invest 1,600 in GMO Internet on October 29, 2024 and sell it today you would earn a total of 20.00 from holding GMO Internet or generate 1.25% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
GMO Internet vs. Iridium Communications
Performance |
Timeline |
GMO Internet |
Iridium Communications |
GMO Internet and Iridium Communications Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GMO Internet and Iridium Communications
The main advantage of trading using opposite GMO Internet and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet 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.GMO Internet vs. Yuexiu Transport Infrastructure | GMO Internet vs. BROADWIND ENRGY | GMO Internet vs. Hanison Construction Holdings | GMO Internet vs. Gold Road Resources |
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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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