Correlation Between Iridium Communications and NETGEAR
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and NETGEAR 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 NETGEAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and NETGEAR, you can compare the effects of market volatilities on Iridium Communications and NETGEAR 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 NETGEAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and NETGEAR.
Diversification Opportunities for Iridium Communications and NETGEAR
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Iridium and NETGEAR is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR 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 NETGEAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NETGEAR has no effect on the direction of Iridium Communications i.e., Iridium Communications and NETGEAR go up and down completely randomly.
Pair Corralation between Iridium Communications and NETGEAR
Given the investment horizon of 90 days Iridium Communications is expected to under-perform the NETGEAR. But the stock apears to be less risky and, when comparing its historical volatility, Iridium Communications is 1.24 times less risky than NETGEAR. The stock trades about -0.03 of its potential returns per unit of risk. The NETGEAR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,066 in NETGEAR on August 27, 2024 and sell it today you would earn a total of 364.00 from holding NETGEAR or generate 17.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. NETGEAR
Performance |
| Timeline |
| Iridium Communications |
| NETGEAR |
Iridium Communications and NETGEAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and NETGEAR
The main advantage of trading using opposite Iridium Communications and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, NETGEAR 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 NETGEAR will offset losses from the drop in NETGEAR's long position.The idea behind Iridium Communications and NETGEAR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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