Correlation Between International Business and TELECOM PLUS

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

Diversification Opportunities for International Business and TELECOM PLUS

0.66

Correlation Coefficient

International Business  TELECOM PLUS

Poor diversification

The 3 months correlation between International and TELECOM is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and TELECOM PLUS PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TELECOM PLUS PLC 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 TELECOM PLUS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TELECOM PLUS PLC has no effect on the direction of International Business i.e., International Business and TELECOM PLUS go up and down completely randomly.

Pair Corralation between International Business and TELECOM PLUS

Considering the 90-day investment horizon International Business Machines is expected to generate 0.64 times more return on investment than TELECOM PLUS. However, International Business Machines is 1.57 times less risky than TELECOM PLUS. It trades about -0.01 of its potential returns per unit of risk. TELECOM PLUS PLC is currently generating about -0.02 per unit of risk. If you would invest  22,423  in International Business Machines on October 4, 2024 and sell it today you would lose (429.00) from holding International Business Machines or give up 1.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

International Business Machine  vs.  TELECOM PLUS PLC

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.

TELECOM PLUS PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TELECOM PLUS PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TELECOM PLUS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with International Business and TELECOM PLUS

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

The idea behind International Business Machines and TELECOM PLUS PLC 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 Global Correlations module to find global opportunities by holding instruments from different markets.