Correlation Between US Foods and Iridium Communications
Can any of the company-specific risk be diversified away by investing in both US Foods 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 US Foods and Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Foods Holding and Iridium Communications, you can compare the effects of market volatilities on US Foods 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 US Foods with a short position of Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Foods and Iridium Communications.
Diversification Opportunities for US Foods and Iridium Communications
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between UFH and Iridium is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding US Foods Holding and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and US Foods 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 US Foods Holding 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 US Foods i.e., US Foods and Iridium Communications go up and down completely randomly.
Pair Corralation between US Foods and Iridium Communications
Assuming the 90 days horizon US Foods is expected to generate 1.04 times less return on investment than Iridium Communications. But when comparing it to its historical volatility, US Foods Holding is 1.78 times less risky than Iridium Communications. It trades about 0.12 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,324 in Iridium Communications on September 24, 2024 and sell it today you would earn a total of 511.00 from holding Iridium Communications or generate 21.99% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
US Foods Holding vs. Iridium Communications
Performance |
Timeline |
US Foods Holding |
Iridium Communications |
US Foods and Iridium Communications Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with US Foods and Iridium Communications
The main advantage of trading using opposite US Foods and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Foods 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.US Foods vs. Iridium Communications | US Foods vs. MARKET VECTR RETAIL | US Foods vs. Canon Marketing Japan | US Foods vs. FAST RETAIL ADR |
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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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