Correlation Between BW Offshore and Iridium Communications

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

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

Diversification Opportunities for BW Offshore and Iridium Communications

0.26

Correlation Coefficient

BW Offshore  Iridium Communications

Modest diversification

The 3 months correlation between BWOFY and Iridium is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and BW Offshore 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 BW Offshore Limited 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 BW Offshore i.e., BW Offshore and Iridium Communications go up and down completely randomly.

Pair Corralation between BW Offshore and Iridium Communications

Assuming the 90 days horizon BW Offshore Limited is expected to generate 1.11 times more return on investment than Iridium Communications. However, BW Offshore is 1.11 times more volatile than Iridium Communications. It trades about 0.1 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.06 per unit of risk. If you would invest  473.00  in BW Offshore Limited on September 14, 2024 and sell it today you would earn a total of  82.00  from holding BW Offshore Limited or generate 17.34% return on investment over 90 days.

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

BW Offshore Limited  vs.  Iridium Communications

BW Offshore Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting technical and fundamental indicators, BW Offshore showed solid returns over the last few months and may actually be approaching a breakup point.

Iridium Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Iridium Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BW Offshore and Iridium Communications

The main advantage of trading using opposite BW Offshore and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore 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 BW Offshore Limited 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.