Correlation Between International Business and China Resources

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

Diversification Opportunities for International Business and China Resources

-0.46
  Correlation Coefficient

Very good diversification

The 3 months correlation between International and China is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and China Resources Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Cement 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 China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Cement has no effect on the direction of International Business i.e., International Business and China Resources go up and down completely randomly.

Pair Corralation between International Business and China Resources

Considering the 90-day investment horizon International Business is expected to generate 2.12 times less return on investment than China Resources. But when comparing it to its historical volatility, International Business Machines is 5.29 times less risky than China Resources. It trades about 0.36 of its potential returns per unit of risk. China Resources Cement is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,258  in China Resources Cement on September 10, 2022 and sell it today you would earn a total of  178.00  from holding China Resources Cement or generate 14.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

International Business Machine  vs.  China Resources Cement

 Performance (%) 
       Timeline  
International Business 
International Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, International Business revealed solid returns over the last few months and may actually be approaching a breakup point.

International Price Channel

China Resources Cement 
China Performance
0 of 100
Over the last 90 days China Resources Cement has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

China Price Channel

International Business and China Resources Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with International Business and China Resources

The main advantage of trading using opposite International Business and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business position performs unexpectedly, China Resources 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 China Resources will offset losses from the drop in China Resources' long position.
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The idea behind International Business Machines and China Resources Cement 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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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 Anywhere module to track or share privately all of your investments from the convenience of any device.

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