Correlation Between International Business and Canadian National

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

Diversification Opportunities for International Business and Canadian National

0.24

Correlation Coefficient

International Business  Canadian National

Modest diversification

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

Pair Corralation between International Business and Canadian National

Considering the 90-day investment horizon International Business Machines is expected to generate 1.07 times more return on investment than Canadian National. However, International Business is 1.07 times more volatile than Canadian National Railway. It trades about 0.09 of its potential returns per unit of risk. Canadian National Railway is currently generating about -0.01 per unit of risk. If you would invest  13,350  in International Business Machines on October 5, 2024 and sell it today you would earn a total of  8,644  from holding International Business Machines or generate 64.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.8%
Values	Daily Returns

International Business Machine  vs.  Canadian National Railway

International Business

Risk-Adjusted Performance

0 of 100

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.

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian National is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with International Business and Canadian National

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

The idea behind International Business Machines and Canadian National Railway 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.