Correlation Between F PD and International Paper

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

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

Diversification Opportunities for F PD and International Paper

-0.4

Correlation Coefficient

F PD  International Paper

Very good diversification

The 3 months correlation between F-PD and International is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding F PD and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and F PD 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 F PD 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 F PD i.e., F PD and International Paper go up and down completely randomly.

Pair Corralation between F PD and International Paper

Given the investment horizon of 90 days F PD is expected to generate 0.35 times more return on investment than International Paper. However, F PD is 2.82 times less risky than International Paper. It trades about -0.21 of its potential returns per unit of risk. International Paper is currently generating about -0.34 per unit of risk. If you would invest  2,487  in F PD on October 4, 2024 and sell it today you would lose (45.00) from holding F PD or give up 1.81% of portfolio value over 90 days.

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

F PD  vs.  International Paper

F PD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days F PD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, F PD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 F PD and International Paper

The main advantage of trading using opposite F PD and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if F PD 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 F PD 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.