Correlation Between Applied Materials and Iridium Communications

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

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

Diversification Opportunities for Applied Materials and Iridium Communications

0.92

Correlation Coefficient

Applied Materials  Iridium Communications

Almost no diversification

The 3 months correlation between Applied and Iridium is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and Iridium Communications go up and down completely randomly.

Pair Corralation between Applied Materials and Iridium Communications

Assuming the 90 days horizon Applied Materials is expected to generate 1.3 times less return on investment than Iridium Communications. In addition to that, Applied Materials is 1.07 times more volatile than Iridium Communications. It trades about 0.19 of its total potential returns per unit of risk. Iridium Communications is currently generating about 0.26 per unit of volatility. If you would invest  1,892  in Iridium Communications on April 23, 2025 and sell it today you would earn a total of  857.00  from holding Iridium Communications or generate 45.3% return on investment over 90 days.

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

Applied Materials  vs.  Iridium Communications

Applied Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Applied Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Iridium Communications

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Iridium Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Iridium Communications

The main advantage of trading using opposite Applied Materials and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 Applied Materials 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.