Correlation Between International Business and Dow

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

Diversification Opportunities for International Business and Dow

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between International and Dow is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Inc 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 Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of International Business i.e., International Business and Dow go up and down completely randomly.

Pair Corralation between International Business and Dow

Considering the 90-day investment horizon International Business Machines is expected to generate 0.78 times more return on investment than Dow. However, International Business Machines is 1.29 times less risky than Dow. It trades about 0.08 of its potential returns per unit of risk. Dow Inc is currently generating about 0.0 per unit of risk. If you would invest  11,424  in International Business Machines on August 31, 2022 and sell it today you would earn a total of  3,208  from holding International Business Machines or generate 28.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

International Business Machine  vs.  Dow Inc

 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 sluggish fundamental drivers, International Business revealed solid returns over the last few months and may actually be approaching a breakup point.

International Price Channel

Dow Inc 
Dow Performance
0 of 100
Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dow is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Dow Price Channel

International Business and Dow Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with International Business and Dow

The main advantage of trading using opposite International Business and Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business position performs unexpectedly, Dow 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 Dow will offset losses from the drop in Dow's long position.
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The idea behind International Business Machines and Dow Inc 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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