Correlation Between United States and IPC MEXICO

Can any of the company-specific risk be diversified away by investing in both United States and IPC MEXICO 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 United States and IPC MEXICO into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United States Steel and IPC MEXICO, you can compare the effects of market volatilities on United States and IPC MEXICO 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 United States with a short position of IPC MEXICO. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and IPC MEXICO.

Diversification Opportunities for United States and IPC MEXICO

0.81

Correlation Coefficient

United States  IPC MEXICO

Very poor diversification

The 3 months correlation between United and IPC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and IPC MEXICO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPC MEXICO and United States 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 United States Steel are associated (or correlated) with IPC MEXICO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IPC MEXICO has no effect on the direction of United States i.e., United States and IPC MEXICO go up and down completely randomly.

Pair Corralation between United States and IPC MEXICO

Given the investment horizon of 90 days United States Steel is expected to generate 3.77 times more return on investment than IPC MEXICO. However, United States is 3.77 times more volatile than IPC MEXICO. It trades about 0.18 of its potential returns per unit of risk. IPC MEXICO is currently generating about 0.16 per unit of risk. If you would invest  62,923  in United States Steel on December 26, 2024 and sell it today you would earn a total of  22,043  from holding United States Steel or generate 35.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

United States Steel  vs.  IPC MEXICO

Pair Trading with United States and IPC MEXICO

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

The idea behind United States Steel and IPC MEXICO 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.