Correlation Between Virco Manufacturing and International Paper

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

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

Diversification Opportunities for Virco Manufacturing and International Paper

0.25

Correlation Coefficient

Virco Manufacturing  International Paper

Modest diversification

The 3 months correlation between Virco and International is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Virco Manufacturing and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and Virco Manufacturing 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 Virco Manufacturing 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 Virco Manufacturing i.e., Virco Manufacturing and International Paper go up and down completely randomly.

Pair Corralation between Virco Manufacturing and International Paper

Given the investment horizon of 90 days Virco Manufacturing is expected to under-perform the International Paper. In addition to that, Virco Manufacturing is 3.79 times more volatile than International Paper. It trades about -0.5 of its total potential returns per unit of risk. International Paper is currently generating about -0.34 per unit of volatility. If you would invest  5,871  in International Paper on October 4, 2024 and sell it today you would lose (489.00) from holding International Paper or give up 8.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Virco Manufacturing  vs.  International Paper

Virco Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virco Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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.

Pair Trading with Virco Manufacturing and International Paper

The main advantage of trading using opposite Virco Manufacturing and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virco Manufacturing 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 Virco Manufacturing 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.