Correlation Between National Australia and International Business

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

Diversification Opportunities for National Australia and International Business

0.37
  Correlation Coefficient

Weak diversification

The 3 months correlation between National and International is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and National Australia 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 National Australia Bank 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 National Australia i.e., National Australia and International Business go up and down completely randomly.

Pair Corralation between National Australia and International Business

Assuming the 90 days horizon National Australia is expected to generate 2.1 times less return on investment than International Business. In addition to that, National Australia is 1.69 times more volatile than International Business Machines. It trades about 0.02 of its total potential returns per unit of risk. International Business Machines is currently generating about 0.07 per unit of volatility. If you would invest  11,773  in International Business Machines on September 5, 2022 and sell it today you would earn a total of  3,094  from holding International Business Machines or generate 26.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.6%
ValuesDaily Returns

National Australia Bank  vs.  International Business Machine

 Performance (%) 
       Timeline  
National Australia Bank 
National Performance
0 of 100
Over the last 90 days National Australia Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, National Australia is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

National Price Channel

International Business 
International Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental drivers, International Business revealed solid returns over the last few months and may actually be approaching a breakup point.

International Price Channel

National Australia and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with National Australia and International Business

The main advantage of trading using opposite National Australia and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Australia 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.
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The idea behind National Australia Bank 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.
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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