Correlation Between Iridium Communications and Summit Materials
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and Summit Materials 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 Summit Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and Summit Materials, you can compare the effects of market volatilities on Iridium Communications and Summit Materials 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 Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and Summit Materials.
Diversification Opportunities for Iridium Communications and Summit Materials
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Iridium and Summit is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Iridium Communications i.e., Iridium Communications and Summit Materials go up and down completely randomly.
Pair Corralation between Iridium Communications and Summit Materials
Given the investment horizon of 90 days Iridium Communications is expected to generate 7.66 times less return on investment than Summit Materials. In addition to that, Iridium Communications is 1.02 times more volatile than Summit Materials. It trades about 0.04 of its total potential returns per unit of risk. Summit Materials is currently generating about 0.28 per unit of volatility. If you would invest 4,510 in Summit Materials on August 26, 2024 and sell it today you would earn a total of 656.00 from holding Summit Materials or generate 14.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. Summit Materials
Performance |
| Timeline |
| Iridium Communications |
| Summit Materials |
Iridium Communications and Summit Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and Summit Materials
The main advantage of trading using opposite Iridium Communications and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, Summit Materials 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 Summit Materials will offset losses from the drop in Summit Materials' long position.The idea behind Iridium Communications and Summit Materials 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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