Correlation Between IPC MEXICO and Texas Instruments

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

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

Diversification Opportunities for IPC MEXICO and Texas Instruments

-0.45

Correlation Coefficient

IPC MEXICO  Texas Instruments

Very good diversification

The 3 months correlation between IPC and Texas is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Texas Instruments Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Instruments 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 Texas Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Instruments has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and Texas Instruments go up and down completely randomly.

Pair Corralation between IPC MEXICO and Texas Instruments

Assuming the 90 days trading horizon IPC MEXICO is expected to generate 9.8 times less return on investment than Texas Instruments. But when comparing it to its historical volatility, IPC MEXICO is 1.74 times less risky than Texas Instruments. It trades about 0.01 of its potential returns per unit of risk. Texas Instruments Incorporated is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  299,792  in Texas Instruments Incorporated on September 24, 2024 and sell it today you would earn a total of  80,208  from holding Texas Instruments Incorporated or generate 26.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.63%
Values	Daily Returns

IPC MEXICO  vs.  Texas Instruments Incorporated

Pair Trading with IPC MEXICO and Texas Instruments

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

The idea behind IPC MEXICO and Texas Instruments Incorporated 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.