Correlation Between Culp and International Paper

Can any of the company-specific risk be diversified away by investing in both Culp and International Paper 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 Culp and International Paper into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Culp Inc and International Paper, you can compare the effects of market volatilities on Culp and International Paper 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 Culp with a short position of International Paper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Culp and International Paper.

Diversification Opportunities for Culp and International Paper

0.18

Correlation Coefficient

Culp  International Paper

Average diversification

The 3 months correlation between Culp and International is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Culp Inc and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and Culp 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 Culp Inc are associated (or correlated) with International Paper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Paper has no effect on the direction of Culp i.e., Culp and International Paper go up and down completely randomly.

Pair Corralation between Culp and International Paper

Given the investment horizon of 90 days Culp Inc is expected to under-perform the International Paper. In addition to that, Culp is 1.4 times more volatile than International Paper. It trades about -0.05 of its total potential returns per unit of risk. International Paper is currently generating about 0.01 per unit of volatility. If you would invest  5,321  in International Paper on December 28, 2024 and sell it today you would earn a total of  0.00  from holding International Paper or generate 0.0% return on investment over 90 days.

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

Culp Inc  vs.  International Paper

Culp Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Culp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

International Paper

Risk-Adjusted Performance

Weak

Over the last 90 days International Paper has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, International Paper is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Culp and International Paper

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

The idea behind Culp Inc and International Paper 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.