Correlation Between Iridium Communications and Universal Music
Can any of the company-specific risk be diversified away by investing in both Iridium Communications and Universal Music 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 Universal Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iridium Communications and Universal Music Group, you can compare the effects of market volatilities on Iridium Communications and Universal Music 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 Universal Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and Universal Music.
Diversification Opportunities for Iridium Communications and Universal Music
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Iridium and Universal is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group 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 Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Iridium Communications i.e., Iridium Communications and Universal Music go up and down completely randomly.
Pair Corralation between Iridium Communications and Universal Music
Given the investment horizon of 90 days Iridium Communications is expected to generate 1.18 times more return on investment than Universal Music. However, Iridium Communications is 1.18 times more volatile than Universal Music Group. It trades about 0.03 of its potential returns per unit of risk. Universal Music Group is currently generating about -0.16 per unit of risk. If you would invest 2,975 in Iridium Communications on August 28, 2024 and sell it today you would earn a total of 24.00 from holding Iridium Communications or generate 0.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iridium Communications vs. Universal Music Group
Performance |
| Timeline |
| Iridium Communications |
| Universal Music Group |
Iridium Communications and Universal Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iridium Communications and Universal Music
The main advantage of trading using opposite Iridium Communications and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, Universal Music 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 Universal Music will offset losses from the drop in Universal Music's long position.The idea behind Iridium Communications and Universal Music Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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