Correlation Between Telefonica and Iridium Communications

Can any of the company-specific risk be diversified away by investing in both Telefonica 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 Telefonica and Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Telefonica SA ADR and Iridium Communications, you can compare the effects of market volatilities on Telefonica 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 Telefonica with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonica and Iridium Communications.

Diversification Opportunities for Telefonica and Iridium Communications

-0.5

Correlation Coefficient

Telefonica  Iridium Communications

Very good diversification

The 3 months correlation between Telefonica and Iridium is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Telefonica 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 Telefonica SA 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 Telefonica i.e., Telefonica and Iridium Communications go up and down completely randomly.

Pair Corralation between Telefonica and Iridium Communications

Considering the 90-day investment horizon Telefonica is expected to generate 3.08 times less return on investment than Iridium Communications. But when comparing it to its historical volatility, Telefonica SA ADR is 2.23 times less risky than Iridium Communications. It trades about 0.25 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  2,520  in Iridium Communications on February 5, 2024 and sell it today you would earn a total of  512.00  from holding Iridium Communications or generate 20.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Telefonica SA ADR  vs.  Iridium Communications

Telefonica SA ADR

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Telefonica reported solid returns over the last few months and may actually be approaching a breakup point.

Iridium Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Telefonica and Iridium Communications

The main advantage of trading using opposite Telefonica and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefonica 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 Telefonica SA 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.