Correlation Between Capital Point and International Business

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

Diversification Opportunities for Capital Point and International Business

-0.29
  Correlation Coefficient

Very good diversification

The 3 months correlation between Capital and International is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Capital Point and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and Capital Point 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 Capital Point 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 Capital Point i.e., Capital Point and International Business go up and down completely randomly.

Pair Corralation between Capital Point and International Business

Assuming the 90 days trading horizon Capital Point is expected to generate 2.0 times more return on investment than International Business. However, Capital Point is 2.0 times more volatile than International Business Machines. It trades about 0.08 of its potential returns per unit of risk. International Business Machines is currently generating about 0.15 per unit of risk. If you would invest  4,030  in Capital Point on December 30, 2023 and sell it today you would earn a total of  1,610  from holding Capital Point or generate 39.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy79.03%
ValuesDaily Returns

Capital Point  vs.  International Business Machine

 Performance 
       Timeline  
Capital Point 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Capital Point has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
International Business 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental drivers, International Business displayed solid returns over the last few months and may actually be approaching a breakup point.

Capital Point and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Capital Point and International Business

The main advantage of trading using opposite Capital Point and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Point 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 Capital Point 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 the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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