Correlation Between Target and International Business

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Can any of the company-specific risk be diversified away by investing in both Target 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 Target and International Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target and International Business Machines, you can compare the effects of market volatilities on Target 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 Target with a short position of International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target and International Business.

Diversification Opportunities for Target and International Business

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Target and International is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Target and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and Target 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 Target 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 Target i.e., Target and International Business go up and down completely randomly.

Pair Corralation between Target and International Business

Considering the 90-day investment horizon Target is expected to under-perform the International Business. In addition to that, Target is 1.83 times more volatile than International Business Machines. It trades about -0.01 of its total potential returns per unit of risk. International Business Machines is currently generating about 0.08 per unit of volatility. If you would invest  11,627  in International Business Machines on December 29, 2023 and sell it today you would earn a total of  7,453  from holding International Business Machines or generate 64.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Target  vs.  International Business Machine

 Performance 
       Timeline  
Target 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.
International Business 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, International Business displayed solid returns over the last few months and may actually be approaching a breakup point.

Target and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Target and International Business

The main advantage of trading using opposite Target and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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.
Check out your portfolio center.
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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