Correlation Between International Business and Capgemini

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

Diversification Opportunities for International Business and Capgemini

-0.38

Correlation Coefficient

International Business  Capgemini

Very good diversification

The 3 months correlation between International and Capgemini is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Capgemini SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capgemini SE 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 Capgemini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capgemini SE has no effect on the direction of International Business i.e., International Business and Capgemini go up and down completely randomly.

Pair Corralation between International Business and Capgemini

Assuming the 90 days trading horizon International Business Machines is expected to generate 1.0 times more return on investment than Capgemini. However, International Business Machines is 1.0 times less risky than Capgemini. It trades about 0.11 of its potential returns per unit of risk. Capgemini SE is currently generating about -0.18 per unit of risk. If you would invest  19,552  in International Business Machines on September 23, 2024 and sell it today you would earn a total of  2,163  from holding International Business Machines or generate 11.06% return on investment over 90 days.

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

International Business Machine  vs.  Capgemini SE

International Business

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Capgemini SE

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with International Business and Capgemini

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

The idea behind International Business Machines and Capgemini SE 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.