Correlation Between Green Brick and International Paper

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

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

Diversification Opportunities for Green Brick and International Paper

-0.1

Correlation Coefficient

Green Brick  International Paper

Good diversification

The 3 months correlation between Green and International is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Green Brick Partners and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper and Green Brick 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 Green Brick Partners 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 Green Brick i.e., Green Brick and International Paper go up and down completely randomly.

Pair Corralation between Green Brick and International Paper

Assuming the 90 days trading horizon Green Brick Partners is expected to under-perform the International Paper. But the preferred stock apears to be less risky and, when comparing its historical volatility, Green Brick Partners is 2.35 times less risky than International Paper. The preferred stock trades about -0.03 of its potential returns per unit of risk. The International Paper is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,806  in International Paper on September 23, 2024 and sell it today you would earn a total of  639.00  from holding International Paper or generate 13.3% return on investment over 90 days.

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

Green Brick Partners  vs.  International Paper

Green Brick Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Green Brick Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Green Brick is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 Green Brick and International Paper

The main advantage of trading using opposite Green Brick and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Green Brick 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 Green Brick Partners 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 CEOs Directory module to screen CEOs from public companies around the world.