Correlation Between International Business and China Health

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

Diversification Opportunities for International Business and China Health

0.23

Correlation Coefficient

International Business  China Health

Modest diversification

The 3 months correlation between International and China is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and China Health Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Health Management 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 China Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Health Management has no effect on the direction of International Business i.e., International Business and China Health go up and down completely randomly.

Pair Corralation between International Business and China Health

Considering the 90-day investment horizon International Business is expected to generate 4.64 times less return on investment than China Health. But when comparing it to its historical volatility, International Business Machines is 10.43 times less risky than China Health. It trades about 0.12 of its potential returns per unit of risk. China Health Management is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.10  in China Health Management on November 30, 2024 and sell it today you would lose (0.61) from holding China Health Management or give up 55.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

International Business Machine  vs.  China Health Management

International Business

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, International Business displayed solid returns over the last few months and may actually be approaching a breakup point.

China Health Management

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Health Management are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, China Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and China Health

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

The idea behind International Business Machines and China Health Management 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.