Correlation Between Smurfit WestRock and Driven Brands

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

By analyzing existing cross correlation between Smurfit WestRock plc and Driven Brands Holdings, you can compare the effects of market volatilities on Smurfit WestRock and Driven Brands 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 WestRock with a short position of Driven Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smurfit WestRock and Driven Brands.

Diversification Opportunities for Smurfit WestRock and Driven Brands

0.87

Correlation Coefficient

Smurfit WestRock  Driven Brands

Very poor diversification

The 3 months correlation between Smurfit and Driven is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit WestRock plc and Driven Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Driven Brands Holdings and Smurfit WestRock 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 WestRock plc are associated (or correlated) with Driven Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Driven Brands Holdings has no effect on the direction of Smurfit WestRock i.e., Smurfit WestRock and Driven Brands go up and down completely randomly.

Pair Corralation between Smurfit WestRock and Driven Brands

Allowing for the 90-day total investment horizon Smurfit WestRock plc is expected to generate 0.84 times more return on investment than Driven Brands. However, Smurfit WestRock plc is 1.19 times less risky than Driven Brands. It trades about 0.13 of its potential returns per unit of risk. Driven Brands Holdings is currently generating about 0.02 per unit of risk. If you would invest  5,166  in Smurfit WestRock plc on September 16, 2024 and sell it today you would earn a total of  207.00  from holding Smurfit WestRock plc or generate 4.01% return on investment over 90 days.

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

Smurfit WestRock plc  vs.  Driven Brands Holdings

Smurfit WestRock plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smurfit WestRock plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Smurfit WestRock showed solid returns over the last few months and may actually be approaching a breakup point.

Driven Brands Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Driven Brands Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Driven Brands displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smurfit WestRock and Driven Brands

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

The idea behind Smurfit WestRock plc and Driven Brands Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.