Correlation Between International Paper and Narragansett Electric
Can any of the company-specific risk be diversified away by investing in both International Paper and Narragansett Electric 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 Narragansett Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Paper and The Narragansett Electric, you can compare the effects of market volatilities on International Paper and Narragansett Electric 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 Narragansett Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Paper and Narragansett Electric.
Diversification Opportunities for International Paper and Narragansett Electric
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and Narragansett is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding International Paper and The Narragansett Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Narragansett Electric 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 Narragansett Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Narragansett Electric has no effect on the direction of International Paper i.e., International Paper and Narragansett Electric go up and down completely randomly.
Pair Corralation between International Paper and Narragansett Electric
If you would invest 5,500 in The Narragansett Electric on October 12, 2024 and sell it today you would earn a total of 0.00 from holding The Narragansett Electric or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Paper vs. The Narragansett Electric
Performance |
| Timeline |
| International Paper |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| The Narragansett Electric |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
International Paper and Narragansett Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Paper and Narragansett Electric
The main advantage of trading using opposite International Paper and Narragansett Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Paper position performs unexpectedly, Narragansett Electric 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 Narragansett Electric will offset losses from the drop in Narragansett Electric's long position.| International Paper vs. Gannett Co | International Paper vs. Afya | International Paper vs. Bright Scholar Education | International Paper vs. Skillful Craftsman Education |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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