Correlation Between International Business and NOV

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

Diversification Opportunities for International Business and NOV

0.5

Correlation Coefficient

International Business  NOV

Very weak diversification

The 3 months correlation between International and NOV is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and NOV Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOV Inc 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 NOV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOV Inc has no effect on the direction of International Business i.e., International Business and NOV go up and down completely randomly.

Pair Corralation between International Business and NOV

Assuming the 90 days trading horizon International Business Machines is expected to generate 27.9 times more return on investment than NOV. However, International Business is 27.9 times more volatile than NOV Inc. It trades about 0.05 of its potential returns per unit of risk. NOV Inc is currently generating about 0.13 per unit of risk. If you would invest  429,503  in International Business Machines on September 27, 2024 and sell it today you would earn a total of  18,097  from holding International Business Machines or generate 4.21% return on investment over 90 days.

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

International Business Machine  vs.  NOV Inc

International Business

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, International Business is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NOV Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NOV Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, NOV is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Business and NOV

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

The idea behind International Business Machines and NOV Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.