Correlation Between International Business and Aedas Homes

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

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

Diversification Opportunities for International Business and Aedas Homes

0.65

Correlation Coefficient

International Business  Aedas Homes

Poor diversification

The 3 months correlation between International and Aedas is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Aedas Homes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aedas Homes SA and International Business 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 International Business Machines are associated (or correlated) with Aedas Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aedas Homes SA has no effect on the direction of International Business i.e., International Business and Aedas Homes go up and down completely randomly.

Pair Corralation between International Business and Aedas Homes

Assuming the 90 days trading horizon International Business is expected to generate 2.51 times less return on investment than Aedas Homes. In addition to that, International Business is 1.01 times more volatile than Aedas Homes SA. It trades about 0.05 of its total potential returns per unit of risk. Aedas Homes SA is currently generating about 0.13 per unit of volatility. If you would invest  2,425  in Aedas Homes SA on December 23, 2024 and sell it today you would earn a total of  390.00  from holding Aedas Homes SA or generate 16.08% return on investment over 90 days.

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

International Business Machine  vs.  Aedas Homes SA

International Business

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Aedas Homes SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aedas Homes SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Aedas Homes reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Aedas Homes

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

The idea behind International Business Machines and Aedas Homes SA 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.