Correlation Between International Business and Gartner

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

Diversification Opportunities for International Business and Gartner

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between International and Gartner is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Gartner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gartner 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 Gartner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gartner has no effect on the direction of International Business i.e., International Business and Gartner go up and down completely randomly.

Pair Corralation between International Business and Gartner

Considering the 90-day investment horizon International Business is expected to generate 2.44 times less return on investment than Gartner. But when comparing it to its historical volatility, International Business Machines is 2.62 times less risky than Gartner. It trades about 0.45 of its potential returns per unit of risk. Gartner is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  25,347  in Gartner on May 21, 2022 and sell it today you would earn a total of  5,451  from holding Gartner or generate 21.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

International Business Machine  vs.  Gartner

 Performance (%) 
       Timeline  
International Business 
International Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, International Business may actually be approaching a critical reversion point that can send shares even higher in September 2022.

International Price Channel

Gartner 
Gartner Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Gartner are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Gartner unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gartner Price Channel

International Business and Gartner Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with International Business and Gartner

The main advantage of trading using opposite International Business and Gartner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business position performs unexpectedly, Gartner 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 Gartner will offset losses from the drop in Gartner's long position.
The idea behind International Business Machines and Gartner 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.

Gartner

Pair trading matchups for Gartner

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Gartner as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Gartner's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Gartner's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Gartner.
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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