Correlation Between Avery Dennison and Transocean

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

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

Diversification Opportunities for Avery Dennison and Transocean

-0.45

Correlation Coefficient

Avery Dennison  Transocean

Very good diversification

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

Pair Corralation between Avery Dennison and Transocean

Assuming the 90 days trading horizon Avery Dennison is expected to generate 27.08 times less return on investment than Transocean. But when comparing it to its historical volatility, Avery Dennison is 82.41 times less risky than Transocean. It trades about 0.13 of its potential returns per unit of risk. Transocean is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,400  in Transocean on October 10, 2024 and sell it today you would earn a total of  127.00  from holding Transocean or generate 5.29% return on investment over 90 days.

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

Avery Dennison  vs.  Transocean

Avery Dennison

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avery Dennison are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avery Dennison is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transocean

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transocean are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Transocean may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Avery Dennison and Transocean

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

The idea behind Avery Dennison and Transocean 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.