Correlation Between International Business and Cape Lambert

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

Diversification Opportunities for International Business and Cape Lambert

-0.1

Correlation Coefficient

International Business  Cape Lambert

Good diversification

The 3 months correlation between International and Cape is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Cape Lambert Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cape Lambert Resources 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 Cape Lambert. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cape Lambert Resources has no effect on the direction of International Business i.e., International Business and Cape Lambert go up and down completely randomly.

Pair Corralation between International Business and Cape Lambert

Considering the 90-day investment horizon International Business is expected to generate 22.95 times less return on investment than Cape Lambert. But when comparing it to its historical volatility, International Business Machines is 38.35 times less risky than Cape Lambert. It trades about 0.1 of its potential returns per unit of risk. Cape Lambert Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.14  in Cape Lambert Resources on October 6, 2024 and sell it today you would earn a total of  2.91  from holding Cape Lambert Resources or generate 2078.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.96%
Values	Daily Returns

International Business Machine  vs.  Cape Lambert Resources

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 current stock price disarray, may contribute to short-term losses for the investors.

Cape Lambert Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cape Lambert Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cape Lambert unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Cape Lambert

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

The idea behind International Business Machines and Cape Lambert Resources 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.