Correlation Between Sonoco Products and Avery Dennison

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Can any of the company-specific risk be diversified away by investing in both Sonoco Products 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 Sonoco Products and Avery Dennison into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sonoco Products and Avery Dennison Corp, you can compare the effects of market volatilities on Sonoco Products 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 Sonoco Products with a short position of Avery Dennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sonoco Products and Avery Dennison.

Diversification Opportunities for Sonoco Products and Avery Dennison

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Sonoco and Avery is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Sonoco Products 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 Sonoco Products 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 Sonoco Products 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 Sonoco Products i.e., Sonoco Products and Avery Dennison go up and down completely randomly.

Pair Corralation between Sonoco Products and Avery Dennison

Considering the 90-day investment horizon Sonoco Products is expected to generate 0.81 times more return on investment than Avery Dennison. However, Sonoco Products is 1.24 times less risky than Avery Dennison. It trades about -0.09 of its potential returns per unit of risk. Avery Dennison Corp is currently generating about -0.07 per unit of risk. If you would invest  5,503  in Sonoco Products on September 2, 2024 and sell it today you would lose (315.00) from holding Sonoco Products or give up 5.72% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Sonoco Products  vs.  Avery Dennison Corp

 Performance 
       Timeline  
Sonoco Products 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Avery Dennison Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Sonoco Products and Avery Dennison Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sonoco Products and Avery Dennison

The main advantage of trading using opposite Sonoco Products and Avery Dennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sonoco Products 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 Sonoco Products 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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