Correlation Between WPP PLC and Iridium Communications
Can any of the company-specific risk be diversified away by investing in both WPP PLC and Iridium Communications 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 WPP PLC and Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WPP PLC ADR and Iridium Communications, you can compare the effects of market volatilities on WPP PLC and Iridium Communications 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 WPP PLC with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPP PLC and Iridium Communications.
Diversification Opportunities for WPP PLC and Iridium Communications
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between WPP and Iridium is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and WPP PLC 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 WPP PLC ADR are associated (or correlated) with Iridium Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iridium Communications has no effect on the direction of WPP PLC i.e., WPP PLC and Iridium Communications go up and down completely randomly.
Pair Corralation between WPP PLC and Iridium Communications
Considering the 90-day investment horizon WPP PLC ADR is expected to generate 0.71 times more return on investment than Iridium Communications. However, WPP PLC ADR is 1.42 times less risky than Iridium Communications. It trades about -0.02 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.04 per unit of risk. If you would invest 5,232 in WPP PLC ADR on November 30, 2024 and sell it today you would lose (1,126) from holding WPP PLC ADR or give up 21.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
WPP PLC ADR vs. Iridium Communications
Performance |
| Timeline |
| WPP PLC ADR |
| Iridium Communications |
WPP PLC and Iridium Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WPP PLC and Iridium Communications
The main advantage of trading using opposite WPP PLC and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WPP PLC position performs unexpectedly, Iridium Communications 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 Iridium Communications will offset losses from the drop in Iridium Communications' long position.The idea behind WPP PLC ADR and Iridium Communications 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.| Iridium Communications vs. IHS Holding | Iridium Communications vs. Cogent Communications Group | Iridium Communications vs. IDT Corporation | Iridium Communications vs. Cable One |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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