Correlation Between Vulcan Energy and International Paper

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

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

Diversification Opportunities for Vulcan Energy and International Paper

0.77

Correlation Coefficient

Vulcan Energy  International Paper

Poor diversification

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

Pair Corralation between Vulcan Energy and International Paper

Assuming the 90 days horizon Vulcan Energy Resources is expected to generate 2.88 times more return on investment than International Paper. However, Vulcan Energy is 2.88 times more volatile than International Paper. It trades about 0.06 of its potential returns per unit of risk. International Paper is currently generating about 0.06 per unit of risk. If you would invest  183.00  in Vulcan Energy Resources on September 26, 2024 and sell it today you would earn a total of  159.00  from holding Vulcan Energy Resources or generate 86.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	46.62%
Values	Daily Returns

Vulcan Energy Resources  vs.  International Paper

Vulcan Energy Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Energy Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Vulcan Energy reported solid returns over the last few months and may actually be approaching a breakup point.

International Paper

Risk-Adjusted Performance

0 of 100

Good

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 Vulcan Energy and International Paper

The main advantage of trading using opposite Vulcan Energy and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Energy 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 Vulcan Energy Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.