Correlation Between Iridium Communications and Liberty Media

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

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

Diversification Opportunities for Iridium Communications and Liberty Media

0.41

Correlation Coefficient

Iridium Communications  Liberty Media

Very weak diversification

The 3 months correlation between Iridium and Liberty is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications and Liberty Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Media 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 Liberty Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Media has no effect on the direction of Iridium Communications i.e., Iridium Communications and Liberty Media go up and down completely randomly.

Pair Corralation between Iridium Communications and Liberty Media

Given the investment horizon of 90 days Iridium Communications is expected to generate 6.17 times less return on investment than Liberty Media. In addition to that, Iridium Communications is 1.36 times more volatile than Liberty Media. It trades about 0.06 of its total potential returns per unit of risk. Liberty Media is currently generating about 0.48 per unit of volatility. If you would invest  3,822  in Liberty Media on September 5, 2024 and sell it today you would earn a total of  3,367  from holding Liberty Media or generate 88.1% return on investment over 90 days.

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

Iridium Communications  vs.  Liberty Media

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.

Liberty Media

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Liberty Media sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iridium Communications and Liberty Media

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

The idea behind Iridium Communications and Liberty Media 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.