Correlation Between International Business and Heidelberg Materials

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

Diversification Opportunities for International Business and Heidelberg Materials

0.14

Correlation Coefficient

International Business  Heidelberg Materials

Average diversification

The 3 months correlation between International and Heidelberg is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Heidelberg Materials AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heidelberg Materials 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 Heidelberg Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heidelberg Materials has no effect on the direction of International Business i.e., International Business and Heidelberg Materials go up and down completely randomly.

Pair Corralation between International Business and Heidelberg Materials

Considering the 90-day investment horizon International Business is expected to generate 1.12 times less return on investment than Heidelberg Materials. But when comparing it to its historical volatility, International Business Machines is 1.02 times less risky than Heidelberg Materials. It trades about 0.1 of its potential returns per unit of risk. Heidelberg Materials AG is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,084  in Heidelberg Materials AG on October 5, 2024 and sell it today you would earn a total of  3,976  from holding Heidelberg Materials AG or generate 49.18% return on investment over 90 days.

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

International Business Machine  vs.  Heidelberg Materials AG

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.

Heidelberg Materials

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Heidelberg Materials AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively unsteady forward indicators, Heidelberg Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Heidelberg Materials

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

The idea behind International Business Machines and Heidelberg Materials AG 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.