Correlation Between International Business and Target

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

Diversification Opportunities for International Business and Target

0.67

Correlation Coefficient

International Business  Target

Poor diversification

The 3 months correlation between International and Target is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of International Business i.e., International Business and Target go up and down completely randomly.

Pair Corralation between International Business and Target

Considering the 90-day investment horizon International Business Machines is expected to generate 0.53 times more return on investment than Target. However, International Business Machines is 1.88 times less risky than Target. It trades about 0.07 of its potential returns per unit of risk. Target is currently generating about -0.01 per unit of risk. If you would invest  12,111  in International Business Machines on January 21, 2024 and sell it today you would earn a total of  6,047  from holding International Business Machines or generate 49.93% return on investment over 90 days.

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

International Business Machine  vs.  Target

International Business

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental drivers, International Business may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Target

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Target

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

The idea behind International Business Machines and Target 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.