Correlation Between Orange SA and Iridium Communications

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

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

Diversification Opportunities for Orange SA and Iridium Communications

-0.3

Correlation Coefficient

Orange SA  Iridium Communications

Very good diversification

The 3 months correlation between Orange and Iridium is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Orange SA ADR and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Orange SA 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 Orange SA ADR 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 Orange SA i.e., Orange SA and Iridium Communications go up and down completely randomly.

Pair Corralation between Orange SA and Iridium Communications

Given the investment horizon of 90 days Orange SA ADR is expected to generate 0.41 times more return on investment than Iridium Communications. However, Orange SA ADR is 2.41 times less risky than Iridium Communications. It trades about -0.01 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.06 per unit of risk. If you would invest  1,090  in Orange SA ADR on September 12, 2024 and sell it today you would lose (61.00) from holding Orange SA ADR or give up 5.6% of portfolio value over 90 days.

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

Orange SA ADR  vs.  Iridium Communications

Orange SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orange SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Iridium Communications

Risk-Adjusted Performance

8 of 100

Modest

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 uncertain fundamental indicators, Iridium Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orange SA and Iridium Communications

The main advantage of trading using opposite Orange SA and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orange SA 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 Orange SA ADR 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.