Correlation Between International Business and Xtrackers

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

Diversification Opportunities for International Business and Xtrackers

0.26

Correlation Coefficient

International Business  Xtrackers

Modest diversification

The 3 months correlation between International and Xtrackers is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Xtrackers SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP has no effect on the direction of International Business i.e., International Business and Xtrackers go up and down completely randomly.

Pair Corralation between International Business and Xtrackers

Considering the 90-day investment horizon International Business Machines is expected to under-perform the Xtrackers. But the stock apears to be less risky and, when comparing its historical volatility, International Business Machines is 1.01 times less risky than Xtrackers. The stock trades about -0.01 of its potential returns per unit of risk. The Xtrackers SP is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  20,330  in Xtrackers SP on October 4, 2024 and sell it today you would earn a total of  2,015  from holding Xtrackers SP or generate 9.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

International Business Machine  vs.  Xtrackers SP

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.

Xtrackers SP

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Xtrackers may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with International Business and Xtrackers

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

The idea behind International Business Machines and Xtrackers SP 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.