Correlation Between International Business and Goldman Sachs

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

Diversification Opportunities for International Business and Goldman Sachs

0.27

Correlation Coefficient

International Business  Goldman Sachs

Modest diversification

The 3 months correlation between International and Goldman is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Goldman Sachs Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Group 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Group has no effect on the direction of International Business i.e., International Business and Goldman Sachs go up and down completely randomly.

Pair Corralation between International Business and Goldman Sachs

Considering the 90-day investment horizon International Business Machines is expected to under-perform the Goldman Sachs. But the stock apears to be less risky and, when comparing its historical volatility, International Business Machines is 1.67 times less risky than Goldman Sachs. The stock trades about -0.12 of its potential returns per unit of risk. The Goldman Sachs Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  40,618  in Goldman Sachs Group on January 26, 2024 and sell it today you would earn a total of  1,686  from holding Goldman Sachs Group or generate 4.15% return on investment over 90 days.

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

International Business Machine  vs.  Goldman Sachs Group

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

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 current stock price disarray, may contribute to short-term losses for the investors.

Goldman Sachs Group

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Goldman Sachs unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Goldman Sachs

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

The idea behind International Business Machines and Goldman Sachs Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.