Correlation Between General Electric and International Business

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

Diversification Opportunities for General Electric and International Business

-0.25
  Correlation Coefficient

Very good diversification

The 3 months correlation between General and International is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and General Electric 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 General Electric 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 General Electric i.e., General Electric and International Business go up and down completely randomly.

Pair Corralation between General Electric and International Business

Allowing for the 90-day total investment horizon General Electric is expected to generate 1.51 times more return on investment than International Business. However, General Electric is 1.51 times more volatile than International Business Machines. It trades about 0.04 of its potential returns per unit of risk. International Business Machines is currently generating about 0.03 per unit of risk. If you would invest  5,136  in General Electric on May 9, 2022 and sell it today you would earn a total of  2,300  from holding General Electric or generate 44.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.8%
ValuesDaily Returns

General Electric  vs.  International Business Machine

 Performance (%) 
       Timeline  
General Electric 
General Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, General Electric is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

General 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 relatively steady fundamental drivers, International Business is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

International Price Channel

General Electric and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and International Business

The main advantage of trading using opposite General Electric and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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 General Electric 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 Shere Portfolio module to track or share privately all of your investments from the convenience of any device.

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