Correlation Between Karat Packaging and Packaging Corp

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

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

Diversification Opportunities for Karat Packaging and Packaging Corp

0.83

Correlation Coefficient

Karat Packaging  Packaging Corp

Very poor diversification

The 3 months correlation between Karat and Packaging is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Karat Packaging and Packaging Corp of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Packaging Corp 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 Packaging Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Packaging Corp has no effect on the direction of Karat Packaging i.e., Karat Packaging and Packaging Corp go up and down completely randomly.

Pair Corralation between Karat Packaging and Packaging Corp

Considering the 90-day investment horizon Karat Packaging is expected to generate 1.94 times less return on investment than Packaging Corp. In addition to that, Karat Packaging is 2.09 times more volatile than Packaging Corp of. It trades about 0.04 of its total potential returns per unit of risk. Packaging Corp of is currently generating about 0.17 per unit of volatility. If you would invest  17,801  in Packaging Corp of on September 29, 2024 and sell it today you would earn a total of  4,908  from holding Packaging Corp of or generate 27.57% return on investment over 90 days.

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

Karat Packaging  vs.  Packaging Corp of

Karat Packaging

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Karat Packaging are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Karat Packaging unveiled solid returns over the last few months and may actually be approaching a breakup point.

Packaging Corp

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Packaging Corp of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking signals, Packaging Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Karat Packaging and Packaging Corp

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

The idea behind Karat Packaging and Packaging Corp of 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.