Correlation Between Infosys and International Business

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

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

Diversification Opportunities for Infosys and International Business

0.82

Correlation Coefficient

Infosys  International Business

Very poor diversification

The 3 months correlation between Infosys and International is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Infosys Limited and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and Infosys 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 Infosys Limited are associated (or correlated) with International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Infosys i.e., Infosys and International Business go up and down completely randomly.

Pair Corralation between Infosys and International Business

Assuming the 90 days trading horizon Infosys Limited is expected to generate 1.11 times more return on investment than International Business. However, Infosys is 1.11 times more volatile than International Business Machines. It trades about 0.29 of its potential returns per unit of risk. International Business Machines is currently generating about 0.27 per unit of risk. If you would invest  6,800  in Infosys Limited on September 25, 2024 and sell it today you would earn a total of  368.00  from holding Infosys Limited or generate 5.41% return on investment over 90 days.

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

Infosys Limited  vs.  International Business Machine

Infosys Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Infosys sustained solid returns over the last few months and may actually be approaching a breakup point.

International Business

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, International Business sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Infosys and International Business

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

The idea behind Infosys Limited and International Business Machines 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.