Correlation Between International Paper and Conrad Industries

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

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

Diversification Opportunities for International Paper and Conrad Industries

-0.62

Correlation Coefficient

International Paper  Conrad Industries

Excellent diversification

The 3 months correlation between International and Conrad is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding International Paper and Conrad Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Conrad Industries and International Paper 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 International Paper are associated (or correlated) with Conrad Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Conrad Industries has no effect on the direction of International Paper i.e., International Paper and Conrad Industries go up and down completely randomly.

Pair Corralation between International Paper and Conrad Industries

If you would invest  4,256  in International Paper on September 29, 2024 and sell it today you would earn a total of  1,193  from holding International Paper or generate 28.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	0.79%
Values	Daily Returns

International Paper  vs.  Conrad Industries

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.

Conrad Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with International Paper and Conrad Industries

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

The idea behind International Paper and Conrad Industries 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.