Correlation Between Retailing Fund and International Paper

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

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

Diversification Opportunities for Retailing Fund and International Paper

0.77

Correlation Coefficient

Retailing Fund  International Paper

Poor diversification

The 3 months correlation between Retailing and International is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Retailing Fund Class and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and Retailing Fund 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 Retailing Fund Class 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 Retailing Fund i.e., Retailing Fund and International Paper go up and down completely randomly.

Pair Corralation between Retailing Fund and International Paper

Assuming the 90 days horizon Retailing Fund Class is expected to under-perform the International Paper. But the mutual fund apears to be less risky and, when comparing its historical volatility, Retailing Fund Class is 1.71 times less risky than International Paper. The mutual fund trades about -0.1 of its potential returns per unit of risk. The International Paper is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  5,404  in International Paper on December 23, 2024 and sell it today you would lose (265.00) from holding International Paper or give up 4.9% of portfolio value over 90 days.

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

Retailing Fund Class  vs.  International Paper

Retailing Fund Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Retailing Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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.

Pair Trading with Retailing Fund and International Paper

The main advantage of trading using opposite Retailing Fund and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Retailing Fund 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 Retailing Fund Class 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.