Correlation Between Iridium Communications and Western Digital

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

By analyzing existing cross correlation between Iridium Communications and Western Digital, you can compare the effects of market volatilities on Iridium Communications and Western Digital 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 Western Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iridium Communications and Western Digital.

Diversification Opportunities for Iridium Communications and Western Digital

-0.73

Correlation Coefficient

Iridium Communications  Western Digital

Pay attention - limited upside

The 3 months correlation between Iridium and Western is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of Iridium Communications i.e., Iridium Communications and Western Digital go up and down completely randomly.

Pair Corralation between Iridium Communications and Western Digital

Given the investment horizon of 90 days Iridium Communications is expected to generate 0.94 times more return on investment than Western Digital. However, Iridium Communications is 1.07 times less risky than Western Digital. It trades about 0.12 of its potential returns per unit of risk. Western Digital is currently generating about 0.08 per unit of risk. If you would invest  2,602  in Iridium Communications on January 21, 2024 and sell it today you would earn a total of  138.00  from holding Iridium Communications or generate 5.3% return on investment over 90 days.

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

Iridium Communications  vs.  Western Digital

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 weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Western Digital

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Western Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iridium Communications and Western Digital

The main advantage of trading using opposite Iridium Communications and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iridium Communications position performs unexpectedly, Western Digital 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 Western Digital will offset losses from the drop in Western Digital's long position.

The idea behind Iridium Communications and Western Digital 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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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.