Correlation Between Sealed Air and Avery Dennison

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

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

Diversification Opportunities for Sealed Air and Avery Dennison

0.72

Correlation Coefficient

Sealed Air  Avery Dennison

Poor diversification

The 3 months correlation between Sealed and Avery is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sealed Air 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 Sealed Air 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 Sealed Air 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 Sealed Air i.e., Sealed Air and Avery Dennison go up and down completely randomly.

Pair Corralation between Sealed Air and Avery Dennison

Considering the 90-day investment horizon Sealed Air is expected to under-perform the Avery Dennison. In addition to that, Sealed Air is 1.3 times more volatile than Avery Dennison Corp. It trades about -0.1 of its total potential returns per unit of risk. Avery Dennison Corp is currently generating about -0.05 per unit of volatility. If you would invest  18,633  in Avery Dennison Corp on December 28, 2024 and sell it today you would lose (834.00) from holding Avery Dennison Corp or give up 4.48% of portfolio value over 90 days.

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

Sealed Air  vs.  Avery Dennison Corp

Sealed Air

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sealed Air has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 Sealed Air and Avery Dennison

The main advantage of trading using opposite Sealed Air and Avery Dennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sealed Air 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 Sealed Air 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.