Correlation Between IPC MEXICO and Halliburton

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

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

Diversification Opportunities for IPC MEXICO and Halliburton

-0.3

Correlation Coefficient

IPC MEXICO  Halliburton

Very good diversification

The 3 months correlation between IPC and Halliburton is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Halliburton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Halliburton and IPC MEXICO 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 IPC MEXICO are associated (or correlated) with Halliburton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Halliburton has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and Halliburton go up and down completely randomly.

Pair Corralation between IPC MEXICO and Halliburton

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the Halliburton. But the index apears to be less risky and, when comparing its historical volatility, IPC MEXICO is 3.74 times less risky than Halliburton. The index trades about -0.15 of its potential returns per unit of risk. The Halliburton is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  55,000  in Halliburton on September 25, 2024 and sell it today you would lose (2,500) from holding Halliburton or give up 4.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

IPC MEXICO  vs.  Halliburton

Pair Trading with IPC MEXICO and Halliburton

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

The idea behind IPC MEXICO and Halliburton 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.