Correlation Between Karat Packaging and Crown Holdings

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

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

Diversification Opportunities for Karat Packaging and Crown Holdings

0.58

Correlation Coefficient

Karat Packaging  Crown Holdings

Very weak diversification

The 3 months correlation between Karat and Crown is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Karat Packaging and Crown Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crown Holdings and Karat 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 Karat Packaging are associated (or correlated) with Crown Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crown Holdings has no effect on the direction of Karat Packaging i.e., Karat Packaging and Crown Holdings go up and down completely randomly.

Pair Corralation between Karat Packaging and Crown Holdings

Considering the 90-day investment horizon Karat Packaging is expected to generate 1.64 times more return on investment than Crown Holdings. However, Karat Packaging is 1.64 times more volatile than Crown Holdings. It trades about 0.08 of its potential returns per unit of risk. Crown Holdings is currently generating about 0.02 per unit of risk. If you would invest  1,268  in Karat Packaging on December 2, 2024 and sell it today you would earn a total of  1,723  from holding Karat Packaging or generate 135.88% return on investment over 90 days.

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

Karat Packaging  vs.  Crown Holdings

Karat Packaging

Risk-Adjusted Performance

Very Weak

Over the last 90 days Karat Packaging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Karat Packaging is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Crown Holdings

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Karat Packaging and Crown Holdings

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

The idea behind Karat Packaging and Crown Holdings 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.