Correlation Between Iridium Communications and Patterson UTI
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and Patterson UTI 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 Patterson UTI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and Patterson UTI Energy, you can compare the effects of market volatilities on Iridium Communications and Patterson UTI 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 Patterson UTI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and Patterson UTI.
Diversification Opportunities for Iridium Communications and Patterson UTI
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Iridium and Patterson is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Patterson UTI Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patterson UTI Energy 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 Patterson UTI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patterson UTI Energy has no effect on the direction of Iridium Communications i.e., Iridium Communications and Patterson UTI go up and down completely randomly.
Pair Corralation between Iridium Communications and Patterson UTI
Given the investment horizon of 90 days Iridium Communications is expected to generate 6.4 times less return on investment than Patterson UTI. But when comparing it to its historical volatility, Iridium Communications is 1.4 times less risky than Patterson UTI. It trades about 0.03 of its potential returns per unit of risk. Patterson UTI Energy is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 798.00 in Patterson UTI Energy on August 28, 2024 and sell it today you would earn a total of 64.00 from holding Patterson UTI Energy or generate 8.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. Patterson UTI Energy
Performance |
| Timeline |
| Iridium Communications |
| Patterson UTI Energy |
Iridium Communications and Patterson UTI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and Patterson UTI
The main advantage of trading using opposite Iridium Communications and Patterson UTI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, Patterson UTI 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 Patterson UTI will offset losses from the drop in Patterson UTI's long position.The idea behind Iridium Communications and Patterson UTI Energy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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