Correlation Between International Business and Shanghai Putailai

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

Diversification Opportunities for International Business and Shanghai Putailai

-0.3
  Correlation Coefficient

Very good diversification

The 3 months correlation between International and Shanghai is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Shanghai Putailai New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Putailai New 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 Shanghai Putailai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Putailai New has no effect on the direction of International Business i.e., International Business and Shanghai Putailai go up and down completely randomly.

Pair Corralation between International Business and Shanghai Putailai

Considering the 90-day investment horizon International Business Machines is expected to generate 0.85 times more return on investment than Shanghai Putailai. However, International Business Machines is 1.18 times less risky than Shanghai Putailai. It trades about -0.21 of its potential returns per unit of risk. Shanghai Putailai New is currently generating about -0.58 per unit of risk. If you would invest  23,349  in International Business Machines on October 5, 2024 and sell it today you would lose (1,355) from holding International Business Machines or give up 5.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.24%
ValuesDaily Returns

International Business Machine  vs.  Shanghai Putailai New

 Performance 
       Timeline  
International Business 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, International Business is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Shanghai Putailai New 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Shanghai Putailai New has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Putailai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

International Business and Shanghai Putailai Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with International Business and Shanghai Putailai

The main advantage of trading using opposite International Business and Shanghai Putailai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business position performs unexpectedly, Shanghai Putailai 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 Shanghai Putailai will offset losses from the drop in Shanghai Putailai's long position.
The idea behind International Business Machines and Shanghai Putailai New 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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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