Correlation Between International Business and Main International

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

Diversification Opportunities for International Business and Main International

0.47

Correlation Coefficient

International Business  Main International

Very weak diversification

The 3 months correlation between International and Main is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Main International ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main International ETF 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 Main International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main International ETF has no effect on the direction of International Business i.e., International Business and Main International go up and down completely randomly.

Pair Corralation between International Business and Main International

Considering the 90-day investment horizon International Business Machines is expected to generate 1.45 times more return on investment than Main International. However, International Business is 1.45 times more volatile than Main International ETF. It trades about 0.09 of its potential returns per unit of risk. Main International ETF is currently generating about 0.03 per unit of risk. If you would invest  13,414  in International Business Machines on October 4, 2024 and sell it today you would earn a total of  8,580  from holding International Business Machines or generate 63.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

International Business Machine  vs.  Main International ETF

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.

Main International ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Main International ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Main International is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with International Business and Main International

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

The idea behind International Business Machines and Main International ETF 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.