Correlation Between International Biotechnology and Software Circle

Can any of the company-specific risk be diversified away by investing in both International Biotechnology and Software Circle 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 Biotechnology and Software Circle into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between International Biotechnology Trust and Software Circle plc, you can compare the effects of market volatilities on International Biotechnology and Software Circle 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 Biotechnology with a short position of Software Circle. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Software Circle.

Diversification Opportunities for International Biotechnology and Software Circle

-0.38

Correlation Coefficient

International Biotechnology  Software Circle

Very good diversification

The 3 months correlation between International and Software is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Software Circle plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Circle plc and International Biotechnology 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 Biotechnology Trust are associated (or correlated) with Software Circle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Circle plc has no effect on the direction of International Biotechnology i.e., International Biotechnology and Software Circle go up and down completely randomly.

Pair Corralation between International Biotechnology and Software Circle

Assuming the 90 days trading horizon International Biotechnology Trust is expected to generate 1.03 times more return on investment than Software Circle. However, International Biotechnology is 1.03 times more volatile than Software Circle plc. It trades about 0.06 of its potential returns per unit of risk. Software Circle plc is currently generating about -0.08 per unit of risk. If you would invest  66,506  in International Biotechnology Trust on October 23, 2024 and sell it today you would earn a total of  2,694  from holding International Biotechnology Trust or generate 4.05% return on investment over 90 days.

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

International Biotechnology Tr  vs.  Software Circle plc

International Biotechnology

Risk-Adjusted Performance

4 of 100

Insignificant

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

Software Circle plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Software Circle plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Software Circle is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with International Biotechnology and Software Circle

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

The idea behind International Biotechnology Trust and Software Circle 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.