Correlation Between International Business and ProShares

Can any of the company-specific risk be diversified away by investing in both International Business and ProShares 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 ProShares 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 ProShares SP 500, you can compare the effects of market volatilities on International Business and ProShares 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 ProShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and ProShares.

Diversification Opportunities for International Business and ProShares

0.54

Correlation Coefficient

International Business  ProShares

Very weak diversification

The 3 months correlation between International and ProShares is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and ProShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares SP 500 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 ProShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares SP 500 has no effect on the direction of International Business i.e., International Business and ProShares go up and down completely randomly.

Pair Corralation between International Business and ProShares

Considering the 90-day investment horizon International Business Machines is expected to generate 1.54 times more return on investment than ProShares. However, International Business is 1.54 times more volatile than ProShares SP 500. It trades about 0.1 of its potential returns per unit of risk. ProShares SP 500 is currently generating about 0.12 per unit of risk. If you would invest  12,440  in International Business Machines on October 21, 2024 and sell it today you would earn a total of  10,039  from holding International Business Machines or generate 80.7% 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.  ProShares SP 500

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.

ProShares SP 500

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ProShares is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with International Business and ProShares

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

The idea behind International Business Machines and ProShares SP 500 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.