Correlation Between Western Digital and Iridium Communications

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

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

Diversification Opportunities for Western Digital and Iridium Communications

-0.7

Correlation Coefficient

Western Digital  Iridium Communications

Excellent diversification

The 3 months correlation between Western and Iridium is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Western Digital 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 Western Digital 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 Western Digital i.e., Western Digital and Iridium Communications go up and down completely randomly.

Pair Corralation between Western Digital and Iridium Communications

Considering the 90-day investment horizon Western Digital is expected to generate 0.89 times more return on investment than Iridium Communications. However, Western Digital is 1.13 times less risky than Iridium Communications. It trades about 0.13 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.12 per unit of risk. If you would invest  5,823  in Western Digital on January 26, 2024 and sell it today you would earn a total of  1,132  from holding Western Digital or generate 19.44% return on investment over 90 days.

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

Western Digital  vs.  Iridium Communications

Western Digital

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Western Digital exhibited 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 inconsistent 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.

Pair Trading with Western Digital and Iridium Communications

The main advantage of trading using opposite Western Digital and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital 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 Western Digital 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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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..