Correlation Between International Paper and Patrick Industries

Can any of the company-specific risk be diversified away by investing in both International Paper and Patrick 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 Patrick 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 Patrick Industries, you can compare the effects of market volatilities on International Paper and Patrick 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 Patrick Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Paper and Patrick Industries.

Diversification Opportunities for International Paper and Patrick Industries

0.66

Correlation Coefficient

International Paper  Patrick Industries

Poor diversification

The 3 months correlation between International and Patrick is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding International Paper and Patrick Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patrick 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 Patrick Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patrick Industries has no effect on the direction of International Paper i.e., International Paper and Patrick Industries go up and down completely randomly.

Pair Corralation between International Paper and Patrick Industries

Allowing for the 90-day total investment horizon International Paper is expected to generate 2.12 times less return on investment than Patrick Industries. In addition to that, International Paper is 1.17 times more volatile than Patrick Industries. It trades about 0.01 of its total potential returns per unit of risk. Patrick Industries is currently generating about 0.03 per unit of volatility. If you would invest  8,236  in Patrick Industries on December 30, 2024 and sell it today you would earn a total of  154.00  from holding Patrick Industries or generate 1.87% return on investment over 90 days.

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

International Paper  vs.  Patrick Industries

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.

Patrick Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Patrick Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Patrick Industries is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with International Paper and Patrick Industries

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

The idea behind International Paper and Patrick 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.