Correlation Between International Business and Fidelity Growth

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

Diversification Opportunities for International Business and Fidelity Growth

0.76

Correlation Coefficient

International Business  Fidelity Growth

Poor diversification

The 3 months correlation between International and Fidelity is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Fidelity Growth Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Growth Discovery 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 Fidelity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Growth Discovery has no effect on the direction of International Business i.e., International Business and Fidelity Growth go up and down completely randomly.

Pair Corralation between International Business and Fidelity Growth

Considering the 90-day investment horizon International Business Machines is expected to generate 0.79 times more return on investment than Fidelity Growth. However, International Business Machines is 1.26 times less risky than Fidelity Growth. It trades about -0.19 of its potential returns per unit of risk. Fidelity Growth Discovery is currently generating about -0.16 per unit of risk. If you would invest  18,879  in International Business Machines on January 25, 2024 and sell it today you would lose (660.00) from holding International Business Machines or give up 3.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

International Business Machine  vs.  Fidelity Growth Discovery

International Business

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, International Business is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Fidelity Growth Discovery

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Growth Discovery are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Fidelity Growth may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with International Business and Fidelity Growth

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

The idea behind International Business Machines and Fidelity Growth Discovery 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.