Correlation Between Transocean and Iridium Communications

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

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

Diversification Opportunities for Transocean and Iridium Communications

0.0

Correlation Coefficient

Transocean  Iridium Communications

Pay attention - limited upside

The 3 months correlation between Transocean and Iridium is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Transocean 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 Transocean 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 Transocean i.e., Transocean and Iridium Communications go up and down completely randomly.

Pair Corralation between Transocean and Iridium Communications

Considering the 90-day investment horizon Transocean is expected to generate 1.34 times more return on investment than Iridium Communications. However, Transocean is 1.34 times more volatile than Iridium Communications. It trades about 0.0 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.04 per unit of risk. If you would invest  460.00  in Transocean on September 26, 2024 and sell it today you would lose (107.00) from holding Transocean or give up 23.26% of portfolio value over 90 days.

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

Transocean  vs.  Iridium Communications

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 very healthy fundamental indicators, Iridium Communications is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Transocean and Iridium Communications

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