Correlation Between International Business and United Parcel

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

Diversification Opportunities for International Business and United Parcel

0.07

Correlation Coefficient

International Business  United Parcel

Significant diversification

The 3 months correlation between International and United is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service 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 United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of International Business i.e., International Business and United Parcel go up and down completely randomly.

Pair Corralation between International Business and United Parcel

Considering the 90-day investment horizon International Business Machines is expected to generate 0.42 times more return on investment than United Parcel. However, International Business Machines is 2.41 times less risky than United Parcel. It trades about -0.34 of its potential returns per unit of risk. United Parcel Service is currently generating about -0.16 per unit of risk. If you would invest  19,396  in International Business Machines on January 20, 2024 and sell it today you would lose (1,249) from holding International Business Machines or give up 6.44% of portfolio value over 90 days.

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

International Business Machine  vs.  United Parcel Service

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.

United Parcel Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with International Business and United Parcel

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

The idea behind International Business Machines and United Parcel Service 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.