Correlation Between Lifeway Foods and Iridium Communications

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

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

Diversification Opportunities for Lifeway Foods and Iridium Communications

0.21

Correlation Coefficient

Lifeway Foods Iridium Communications

Modest diversification

The 3 months correlation between Lifeway and Iridium is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Lifeway Foods 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 Lifeway Foods 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 Lifeway Foods i.e., Lifeway Foods and Iridium Communications go up and down completely randomly.

Pair Corralation between Lifeway Foods and Iridium Communications

Given the investment horizon of 90 days Lifeway Foods is expected to generate 0.58 times more return on investment than Iridium Communications. However, Lifeway Foods is 1.74 times less risky than Iridium Communications. It trades about 0.21 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.01 per unit of risk. If you would invest  562.00  in Lifeway Foods on December 24, 2022 and sell it today you would earn a total of  65.00  from holding Lifeway Foods or generate 11.57% return on investment over 90 days.

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

Lifeway Foods  vs.  Iridium Communications

Lifeway Foods

Lifeway Performance

9 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Lifeway Foods may actually be approaching a critical reversion point that can send shares even higher in April 2023.

Iridium Communications

Iridium Performance

8 of 100

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

Pair Trading with Lifeway Foods and Iridium Communications

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

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The idea behind Lifeway Foods 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.