Correlation Between Graphic Packaging and Avery Dennison

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

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

Diversification Opportunities for Graphic Packaging and Avery Dennison

0.77

Correlation Coefficient

Graphic Packaging  Avery Dennison

Poor diversification

The 3 months correlation between Graphic and Avery is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Graphic Packaging Holding and Avery Dennison Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avery Dennison Corp and Graphic Packaging 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 Graphic Packaging Holding are associated (or correlated) with Avery Dennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avery Dennison Corp has no effect on the direction of Graphic Packaging i.e., Graphic Packaging and Avery Dennison go up and down completely randomly.

Pair Corralation between Graphic Packaging and Avery Dennison

Considering the 90-day investment horizon Graphic Packaging Holding is expected to generate 1.05 times more return on investment than Avery Dennison. However, Graphic Packaging is 1.05 times more volatile than Avery Dennison Corp. It trades about -0.05 of its potential returns per unit of risk. Avery Dennison Corp is currently generating about -0.06 per unit of risk. If you would invest  2,733  in Graphic Packaging Holding on December 27, 2024 and sell it today you would lose (127.00) from holding Graphic Packaging Holding or give up 4.65% of portfolio value over 90 days.

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

Graphic Packaging Holding  vs.  Avery Dennison Corp

Graphic Packaging Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Graphic Packaging Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Graphic Packaging is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 fairly 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.

Pair Trading with Graphic Packaging and Avery Dennison

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

The idea behind Graphic Packaging Holding and Avery Dennison Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.