Correlation Between North American and Graphic Packaging

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Can any of the company-specific risk be diversified away by investing in both North American and Graphic Packaging 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 North American and Graphic Packaging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and Graphic Packaging Holding, you can compare the effects of market volatilities on North American and Graphic Packaging 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 North American with a short position of Graphic Packaging. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Graphic Packaging.

Diversification Opportunities for North American and Graphic Packaging

0.22
  Correlation Coefficient

Modest diversification

The 3 months correlation between North and Graphic is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Graphic Packaging Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graphic Packaging Holding and North American 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 North American Construction are associated (or correlated) with Graphic Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graphic Packaging Holding has no effect on the direction of North American i.e., North American and Graphic Packaging go up and down completely randomly.

Pair Corralation between North American and Graphic Packaging

Considering the 90-day investment horizon North American Construction is expected to under-perform the Graphic Packaging. In addition to that, North American is 1.74 times more volatile than Graphic Packaging Holding. It trades about -0.2 of its total potential returns per unit of risk. Graphic Packaging Holding is currently generating about 0.39 per unit of volatility. If you would invest  2,599  in Graphic Packaging Holding on December 30, 2023 and sell it today you would earn a total of  319.00  from holding Graphic Packaging Holding or generate 12.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

North American Construction  vs.  Graphic Packaging Holding

 Performance 
       Timeline  
North American Const 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, North American may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Graphic Packaging Holding 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Graphic Packaging Holding are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Graphic Packaging disclosed solid returns over the last few months and may actually be approaching a breakup point.

North American and Graphic Packaging Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with North American and Graphic Packaging

The main advantage of trading using opposite North American and Graphic Packaging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Graphic Packaging 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 Graphic Packaging will offset losses from the drop in Graphic Packaging's long position.
The idea behind North American Construction and Graphic Packaging Holding 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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