Correlation Between Iridium Communications and CVW CleanTech

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

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

Diversification Opportunities for Iridium Communications and CVW CleanTech

0.13

Correlation Coefficient

Iridium Communications  CVW CleanTech

Average diversification

The 3 months correlation between Iridium and CVW is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and CVW CleanTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVW CleanTech 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 CVW CleanTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVW CleanTech has no effect on the direction of Iridium Communications i.e., Iridium Communications and CVW CleanTech go up and down completely randomly.

Pair Corralation between Iridium Communications and CVW CleanTech

Given the investment horizon of 90 days Iridium Communications is expected to generate 0.95 times more return on investment than CVW CleanTech. However, Iridium Communications is 1.05 times less risky than CVW CleanTech. It trades about 0.07 of its potential returns per unit of risk. CVW CleanTech is currently generating about -0.01 per unit of risk. If you would invest  2,687  in Iridium Communications on September 4, 2024 and sell it today you would earn a total of  305.00  from holding Iridium Communications or generate 11.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Iridium Communications  vs.  CVW CleanTech

Iridium Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Iridium Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

CVW CleanTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVW CleanTech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, CVW CleanTech is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Iridium Communications and CVW CleanTech

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

The idea behind Iridium Communications and CVW CleanTech 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.