Correlation Between United States and International Business
Can any of the company-specific risk be diversified away by investing in both United States 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 United States and International Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United States Steel and International Business Machines, you can compare the effects of market volatilities on United States 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 United States with a short position of International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and International Business.
Diversification Opportunities for United States and International Business
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and International is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and United States 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 United States Steel 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 United States i.e., United States and International Business go up and down completely randomly.
Pair Corralation between United States and International Business
Given the investment horizon of 90 days United States Steel is expected to generate 1.01 times more return on investment than International Business. However, United States is 1.01 times more volatile than International Business Machines. It trades about 0.1 of its potential returns per unit of risk. International Business Machines is currently generating about 0.07 per unit of risk. If you would invest 350,400 in United States Steel on November 30, 2024 and sell it today you would earn a total of 1,244,600 from holding United States Steel or generate 355.19% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
United States Steel vs. International Business Machine
Performance |
Timeline |
United States Steel |
International Business |
United States and International Business Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with United States and International Business
The main advantage of trading using opposite United States and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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.United States vs. Verizon Communications | ||
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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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