Correlation Between Karat Packaging and Sonoco Products

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

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

Diversification Opportunities for Karat Packaging and Sonoco Products

0.05

Correlation Coefficient

Karat Packaging  Sonoco Products

Significant diversification

The 3 months correlation between Karat and Sonoco is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Karat Packaging and Sonoco Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoco Products 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 Sonoco Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonoco Products has no effect on the direction of Karat Packaging i.e., Karat Packaging and Sonoco Products go up and down completely randomly.

Pair Corralation between Karat Packaging and Sonoco Products

Considering the 90-day investment horizon Karat Packaging is expected to under-perform the Sonoco Products. In addition to that, Karat Packaging is 1.31 times more volatile than Sonoco Products. It trades about -0.04 of its total potential returns per unit of risk. Sonoco Products is currently generating about -0.02 per unit of volatility. If you would invest  4,806  in Sonoco Products on December 28, 2024 and sell it today you would lose (118.00) from holding Sonoco Products or give up 2.46% of portfolio value over 90 days.

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

Karat Packaging  vs.  Sonoco Products

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.

Sonoco Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonoco Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Sonoco Products is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Karat Packaging and Sonoco Products

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

The idea behind Karat Packaging and Sonoco Products 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.