Correlation Between Big 5 and International Business

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Can any of the company-specific risk be diversified away by investing in both Big 5 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 Big 5 and International Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and International Business Machines, you can compare the effects of market volatilities on Big 5 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 Big 5 with a short position of International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and International Business.

Diversification Opportunities for Big 5 and International Business

0.15
  Correlation Coefficient

Average diversification

The 3 months correlation between Big 5 and International is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and Big 5 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 Big 5 Sporting 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 Big 5 i.e., Big 5 and International Business go up and down completely randomly.

Pair Corralation between Big 5 and International Business

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the International Business. In addition to that, Big 5 is 4.51 times more volatile than International Business Machines. It trades about -0.03 of its total potential returns per unit of risk. International Business Machines is currently generating about -0.15 per unit of volatility. If you would invest  13,204  in International Business Machines on June 30, 2022 and sell it today you would lose (928.00)  from holding International Business Machines or give up 7.03% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Big 5 Sporting  vs.  International Business Machine

 Performance (%) 
       Timeline  
Big 5 Sporting 
Big 5 Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Big 5 may actually be approaching a critical reversion point that can send shares even higher in October 2022.

Big 5 Price Channel

International Business 
International Performance
0 of 100
Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's fundamental drivers remain relatively steady which may send shares a bit higher in October 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

International Price Channel

Big 5 and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Big 5 and International Business

The main advantage of trading using opposite Big 5 and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 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.
Big 5 vs. Advance Auto Parts
The idea behind Big 5 Sporting 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.
International Business vs. Johnson Johnson
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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