Correlation Between International Business and CDW Corp

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

Diversification Opportunities for International Business and CDW Corp

0.53

Correlation Coefficient

International Business  CDW Corp

Very weak diversification

The 3 months correlation between International and CDW is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and CDW Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDW Corp 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 CDW Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDW Corp has no effect on the direction of International Business i.e., International Business and CDW Corp go up and down completely randomly.

Pair Corralation between International Business and CDW Corp

Considering the 90-day investment horizon International Business Machines is expected to under-perform the CDW Corp. In addition to that, International Business is 1.83 times more volatile than CDW Corp. It trades about -0.29 of its total potential returns per unit of risk. CDW Corp is currently generating about -0.18 per unit of volatility. If you would invest  25,306  in CDW Corp on January 30, 2024 and sell it today you would lose (1,080) from holding CDW Corp or give up 4.27% of portfolio value over 90 days.

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

International Business Machine  vs.  CDW Corp

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 latest inconsistent performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

CDW Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CDW Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, CDW Corp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with International Business and CDW Corp

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

The idea behind International Business Machines and CDW Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.