Correlation Between Good Natured and International Paper

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

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

Diversification Opportunities for Good Natured and International Paper

-0.41

Correlation Coefficient

Good Natured  International Paper

Very good diversification

The 3 months correlation between Good and International is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Good Natured Products and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and Good Natured 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 Good Natured Products 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 Good Natured i.e., Good Natured and International Paper go up and down completely randomly.

Pair Corralation between Good Natured and International Paper

Assuming the 90 days horizon Good Natured Products is expected to generate 2.01 times more return on investment than International Paper. However, Good Natured is 2.01 times more volatile than International Paper. It trades about 0.29 of its potential returns per unit of risk. International Paper is currently generating about -0.09 per unit of risk. If you would invest  0.50  in Good Natured Products on October 12, 2024 and sell it today you would earn a total of  0.04  from holding Good Natured Products or generate 8.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	29.27%
Values	Daily Returns

Good Natured Products  vs.  International Paper

Good Natured Products

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Good Natured Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Good Natured reported solid returns over the last few months and may actually be approaching a breakup point.

International Paper

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Paper are ranked lower than 8 (%) 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 Good Natured and International Paper

The main advantage of trading using opposite Good Natured and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Good Natured 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 Good Natured Products 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.