Correlation Between International Business and WELLS

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

Diversification Opportunities for International Business and WELLS

-0.66

Correlation Coefficient

International Business  WELLS

Excellent diversification

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

Pair Corralation between International Business and WELLS

Considering the 90-day investment horizon International Business Machines is expected to generate 2.31 times more return on investment than WELLS. However, International Business is 2.31 times more volatile than WELLS FARGO BK. It trades about 0.1 of its potential returns per unit of risk. WELLS FARGO BK is currently generating about -0.04 per unit of risk. If you would invest  22,589  in International Business Machines on December 1, 2024 and sell it today you would earn a total of  2,655  from holding International Business Machines or generate 11.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	41.67%
Values	Daily Returns

International Business Machine  vs.  WELLS FARGO BK

International Business

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, International Business displayed solid returns over the last few months and may actually be approaching a breakup point.

WELLS FARGO BK

Risk-Adjusted Performance

Very Weak

Over the last 90 days WELLS FARGO BK has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, WELLS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Business and WELLS

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

The idea behind International Business Machines and WELLS FARGO BK 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.