Correlation Between IPC MEXICO and International Business

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

By analyzing existing cross correlation between IPC MEXICO and International Business Machines, you can compare the effects of market volatilities on IPC MEXICO and International Business 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 IPC MEXICO with a short position of International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPC MEXICO and International Business.

Diversification Opportunities for IPC MEXICO and International Business

-0.28

Correlation Coefficient

IPC MEXICO  International Business

Very good diversification

The 3 months correlation between IPC and International is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and IPC MEXICO 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 IPC MEXICO are associated (or correlated) with International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and International Business go up and down completely randomly.

Pair Corralation between IPC MEXICO and International Business

Assuming the 90 days trading horizon IPC MEXICO is expected to generate 16.99 times less return on investment than International Business. But when comparing it to its historical volatility, IPC MEXICO is 2.25 times less risky than International Business. It trades about 0.04 of its potential returns per unit of risk. International Business Machines is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  422,175  in International Business Machines on September 18, 2024 and sell it today you would earn a total of  40,825  from holding International Business Machines or generate 9.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

IPC MEXICO  vs.  International Business Machine

Pair Trading with IPC MEXICO and International Business

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

The idea behind IPC MEXICO and International Business Machines 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.