Correlation Between Smurfit Kappa and Gear Energy

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

By analyzing existing cross correlation between Smurfit Kappa Group and Gear Energy, you can compare the effects of market volatilities on Smurfit Kappa and Gear Energy 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 Smurfit Kappa with a short position of Gear Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smurfit Kappa and Gear Energy.

Diversification Opportunities for Smurfit Kappa and Gear Energy

-0.53

Correlation Coefficient

Smurfit Kappa  Gear Energy

Excellent diversification

The 3 months correlation between Smurfit and Gear is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit Kappa Group and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear Energy and Smurfit Kappa 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 Smurfit Kappa Group are associated (or correlated) with Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of Smurfit Kappa i.e., Smurfit Kappa and Gear Energy go up and down completely randomly.

Pair Corralation between Smurfit Kappa and Gear Energy

Assuming the 90 days horizon Smurfit Kappa Group is expected to generate 0.87 times more return on investment than Gear Energy. However, Smurfit Kappa Group is 1.15 times less risky than Gear Energy. It trades about 0.09 of its potential returns per unit of risk. Gear Energy is currently generating about -0.06 per unit of risk. If you would invest  4,392  in Smurfit Kappa Group on October 1, 2024 and sell it today you would earn a total of  668.00  from holding Smurfit Kappa Group or generate 15.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Smurfit Kappa Group  vs.  Gear Energy

Smurfit Kappa Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smurfit Kappa Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Smurfit Kappa reported solid returns over the last few months and may actually be approaching a breakup point.

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Smurfit Kappa and Gear Energy

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

The idea behind Smurfit Kappa Group and Gear Energy 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 Anywhere module to track or share privately all of your investments from the convenience of any device.