Correlation Between International Business and US Bancorp

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

Diversification Opportunities for International Business and US Bancorp

0.44

Correlation Coefficient

International Business  US Bancorp

Very weak diversification

The 3 months correlation between International and USB is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of International Business i.e., International Business and US Bancorp go up and down completely randomly.

Pair Corralation between International Business and US Bancorp

Assuming the 90 days trading horizon International Business is expected to generate 2.73 times less return on investment than US Bancorp. But when comparing it to its historical volatility, International Business Machines is 1.27 times less risky than US Bancorp. It trades about 0.05 of its potential returns per unit of risk. US Bancorp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  88,846  in US Bancorp on September 27, 2024 and sell it today you would earn a total of  11,604  from holding US Bancorp or generate 13.06% 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.  US Bancorp

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.

US Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and US Bancorp

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

The idea behind International Business Machines and US Bancorp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.