Correlation Between Energy Focu and International Paper

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

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

Diversification Opportunities for Energy Focu and International Paper

0.31

Correlation Coefficient

Energy Focu  International Paper

Weak diversification

The 3 months correlation between Energy and International is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Energy Focu and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and Energy Focu 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 Energy Focu 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 Energy Focu i.e., Energy Focu and International Paper go up and down completely randomly.

Pair Corralation between Energy Focu and International Paper

Given the investment horizon of 90 days Energy Focu is expected to under-perform the International Paper. In addition to that, Energy Focu is 2.04 times more volatile than International Paper. It trades about -0.4 of its total potential returns per unit of risk. International Paper is currently generating about -0.34 per unit of volatility. If you would invest  5,871  in International Paper on October 4, 2024 and sell it today you would lose (489.00) from holding International Paper or give up 8.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Energy Focu  vs.  International Paper

Energy Focu

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Focu are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Energy Focu is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

International Paper

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Paper are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, International Paper reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy Focu and International Paper

The main advantage of trading using opposite Energy Focu and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Focu 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 Energy Focu 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.