Correlation Between Retailing Portfolio and International Paper

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

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

Diversification Opportunities for Retailing Portfolio and International Paper

0.21

Correlation Coefficient

Retailing Portfolio  International Paper

Modest diversification

The 3 months correlation between Retailing and International is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Retailing Portfolio Retailing and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and Retailing Portfolio 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 Retailing Portfolio Retailing 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 Retailing Portfolio i.e., Retailing Portfolio and International Paper go up and down completely randomly.

Pair Corralation between Retailing Portfolio and International Paper

Assuming the 90 days horizon Retailing Portfolio Retailing is expected to under-perform the International Paper. But the mutual fund apears to be less risky and, when comparing its historical volatility, Retailing Portfolio Retailing is 1.2 times less risky than International Paper. The mutual fund trades about -0.08 of its potential returns per unit of risk. The International Paper is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,798  in International Paper on December 1, 2024 and sell it today you would lose (163.00) from holding International Paper or give up 2.81% of portfolio value over 90 days.

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

Retailing Portfolio Retailing  vs.  International Paper

Retailing Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Retailing Portfolio Retailing has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Retailing Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

International Paper

Risk-Adjusted Performance

Very 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 Retailing Portfolio and International Paper

The main advantage of trading using opposite Retailing Portfolio and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Retailing Portfolio 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 Retailing Portfolio Retailing 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.