Correlation Between Iridium Communications and Procter Gamble
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and Procter Gamble 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 Procter Gamble into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and Procter Gamble, you can compare the effects of market volatilities on Iridium Communications and Procter Gamble 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 Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and Procter Gamble.
Diversification Opportunities for Iridium Communications and Procter Gamble
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Iridium and Procter is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Iridium Communications i.e., Iridium Communications and Procter Gamble go up and down completely randomly.
Pair Corralation between Iridium Communications and Procter Gamble
Given the investment horizon of 90 days Iridium Communications is expected to generate 3.5 times less return on investment than Procter Gamble. In addition to that, Iridium Communications is 2.0 times more volatile than Procter Gamble. It trades about 0.03 of its total potential returns per unit of risk. Procter Gamble is currently generating about 0.19 per unit of volatility. If you would invest 16,930 in Procter Gamble on August 28, 2024 and sell it today you would earn a total of 809.00 from holding Procter Gamble or generate 4.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. Procter Gamble
Performance |
| Timeline |
| Iridium Communications |
| Procter Gamble |
Iridium Communications and Procter Gamble Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and Procter Gamble
The main advantage of trading using opposite Iridium Communications and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, Procter Gamble 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 Procter Gamble will offset losses from the drop in Procter Gamble's long position.The idea behind Iridium Communications and Procter Gamble 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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