Correlation Between International Paper and Toray Industries

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

Diversification Opportunities for International Paper and Toray Industries

0.65

Correlation Coefficient

International Paper  Toray Industries

Poor diversification

The 3 months correlation between International and Toray is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding International Paper and Toray Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toray 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 Toray Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toray Industries has no effect on the direction of International Paper i.e., International Paper and Toray Industries go up and down completely randomly.

Pair Corralation between International Paper and Toray Industries

Allowing for the 90-day total investment horizon International Paper is expected to generate 1.12 times less return on investment than Toray Industries. In addition to that, International Paper is 1.86 times more volatile than Toray Industries. It trades about 0.09 of its total potential returns per unit of risk. Toray Industries is currently generating about 0.2 per unit of volatility. If you would invest  527.00  in Toray Industries on September 16, 2024 and sell it today you would earn a total of  80.00  from holding Toray Industries or generate 15.18% 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.  Toray 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.

Toray Industries

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toray Industries are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Toray Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Paper and Toray Industries

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

The idea behind International Paper and Toray 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.