Correlation Between International Paper and Canoo Holdings

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

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

Diversification Opportunities for International Paper and Canoo Holdings

0.21

Correlation Coefficient

International Paper  Canoo Holdings

Modest diversification

The 3 months correlation between International and Canoo is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding International Paper and Canoo Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canoo Holdings 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 Canoo Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canoo Holdings has no effect on the direction of International Paper i.e., International Paper and Canoo Holdings go up and down completely randomly.

Pair Corralation between International Paper and Canoo Holdings

Allowing for the 90-day total investment horizon International Paper is expected to under-perform the Canoo Holdings. But the stock apears to be less risky and, when comparing its historical volatility, International Paper is 18.14 times less risky than Canoo Holdings. The stock trades about -0.05 of its potential returns per unit of risk. The Canoo Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Canoo Holdings on November 28, 2024 and sell it today you would lose (1.49) from holding Canoo Holdings or give up 74.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	68.97%
Values	Daily Returns

International Paper  vs.  Canoo Holdings

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.

Canoo Holdings

Risk-Adjusted Performance

Weak

Over the last 90 days Canoo Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal basic indicators, Canoo Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Paper and Canoo Holdings

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

The idea behind International Paper and Canoo Holdings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.