Correlation Between Iridium Communications and KVH Industries
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and KVH Industries 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 KVH Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and KVH Industries, you can compare the effects of market volatilities on Iridium Communications and KVH Industries 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 KVH Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and KVH Industries.
Diversification Opportunities for Iridium Communications and KVH Industries
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Iridium and KVH is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and KVH Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KVH Industries 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 KVH Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KVH Industries has no effect on the direction of Iridium Communications i.e., Iridium Communications and KVH Industries go up and down completely randomly.
Pair Corralation between Iridium Communications and KVH Industries
Given the investment horizon of 90 days Iridium Communications is expected to generate 0.88 times more return on investment than KVH Industries. However, Iridium Communications is 1.14 times less risky than KVH Industries. It trades about -0.03 of its potential returns per unit of risk. KVH Industries is currently generating about -0.03 per unit of risk. If you would invest 4,844 in Iridium Communications on August 27, 2024 and sell it today you would lose (1,904) from holding Iridium Communications or give up 39.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. KVH Industries
Performance |
| Timeline |
| Iridium Communications |
| KVH Industries |
Iridium Communications and KVH Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and KVH Industries
The main advantage of trading using opposite Iridium Communications and KVH Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, KVH Industries 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 KVH Industries will offset losses from the drop in KVH Industries' long position.The idea behind Iridium Communications and KVH Industries 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.
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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