Correlation Between Sonoco Products and International Paper

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

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

Diversification Opportunities for Sonoco Products and International Paper

-0.79

Correlation Coefficient

Sonoco Products  International Paper

Pay attention - limited upside

The 3 months correlation between Sonoco and International is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Sonoco Products and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 International Paper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Paper has no effect on the direction of Sonoco Products i.e., Sonoco Products and International Paper go up and down completely randomly.

Pair Corralation between Sonoco Products and International Paper

Considering the 90-day investment horizon Sonoco Products is expected to under-perform the International Paper. But the stock apears to be less risky and, when comparing its historical volatility, Sonoco Products is 2.1 times less risky than International Paper. The stock trades about -0.13 of its potential returns per unit of risk. The International Paper is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,803  in International Paper on August 30, 2024 and sell it today you would earn a total of  1,035  from holding International Paper or generate 21.55% return on investment over 90 days.

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

Sonoco Products  vs.  International Paper

Sonoco Products

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

International Paper

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Paper are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, International Paper reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonoco Products and International Paper

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

The idea behind Sonoco Products and International Paper 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.