Correlation Between International Business and Digital China

Can any of the company-specific risk be diversified away by investing in both International Business and Digital China 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 Digital China 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 Digital China Holdings, you can compare the effects of market volatilities on International Business and Digital China 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 Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and Digital China.

Diversification Opportunities for International Business and Digital China

0.24

Correlation Coefficient

International Business  Digital China

Modest diversification

The 3 months correlation between International and Digital is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Digital China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Holdings 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 Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Holdings has no effect on the direction of International Business i.e., International Business and Digital China go up and down completely randomly.

Pair Corralation between International Business and Digital China

Assuming the 90 days horizon International Business Machines is expected to generate 0.62 times more return on investment than Digital China. However, International Business Machines is 1.62 times less risky than Digital China. It trades about 0.05 of its potential returns per unit of risk. Digital China Holdings is currently generating about -0.06 per unit of risk. If you would invest  21,282  in International Business Machines on December 24, 2024 and sell it today you would earn a total of  1,233  from holding International Business Machines or generate 5.79% return on investment over 90 days.

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

International Business Machine  vs.  Digital China Holdings

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. Despite nearly fragile basic indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Digital China Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital China Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with International Business and Digital China

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

The idea behind International Business Machines and Digital China Holdings 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.