Correlation Between Avery Dennison and International Paper

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

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

Diversification Opportunities for Avery Dennison and International Paper

0.58

Correlation Coefficient

Avery Dennison  International Paper

Very weak diversification

The 3 months correlation between Avery and International is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Avery Dennison Corp and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 Corp 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 Avery Dennison i.e., Avery Dennison and International Paper go up and down completely randomly.

Pair Corralation between Avery Dennison and International Paper

Considering the 90-day investment horizon Avery Dennison Corp is expected to generate 0.89 times more return on investment than International Paper. However, Avery Dennison Corp is 1.12 times less risky than International Paper. It trades about -0.18 of its potential returns per unit of risk. International Paper is currently generating about -0.16 per unit of risk. If you would invest  19,591  in Avery Dennison Corp on November 28, 2024 and sell it today you would lose (1,137) from holding Avery Dennison Corp or give up 5.8% of portfolio value over 90 days.

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

Avery Dennison Corp  vs.  International Paper

Avery Dennison Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avery Dennison Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

International Paper

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Paper has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, International Paper is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Avery Dennison and International Paper

The main advantage of trading using opposite Avery Dennison and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avery Dennison 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 Avery Dennison Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.