Correlation Between International Business and Information Services

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

Diversification Opportunities for International Business and Information Services

0.39

Correlation Coefficient

International Business  Information Services

Weak diversification

The 3 months correlation between International and Information is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Information Services Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Services 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 Information Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Services has no effect on the direction of International Business i.e., International Business and Information Services go up and down completely randomly.

Pair Corralation between International Business and Information Services

Considering the 90-day investment horizon International Business Machines is expected to generate 1.38 times more return on investment than Information Services. However, International Business is 1.38 times more volatile than Information Services Group. It trades about -0.31 of its potential returns per unit of risk. Information Services Group is currently generating about -0.63 per unit of risk. If you would invest  18,888  in International Business Machines on February 2, 2024 and sell it today you would lose (2,445) from holding International Business Machines or give up 12.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

International Business Machine  vs.  Information Services Group

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 latest unfluctuating performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Information Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Information Services Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with International Business and Information Services

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

The idea behind International Business Machines and Information Services Group 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.