Correlation Between Smurfit WestRock and International Paper

Can any of the company-specific risk be diversified away by investing in both Smurfit WestRock 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 Smurfit WestRock and International Paper 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 International Paper, you can compare the effects of market volatilities on Smurfit WestRock 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 Smurfit WestRock with a short position of International Paper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smurfit WestRock and International Paper.

Diversification Opportunities for Smurfit WestRock and International Paper

0.94

Correlation Coefficient

Smurfit WestRock  International Paper

Almost no diversification

The 3 months correlation between Smurfit and International is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit WestRock plc and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 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 Smurfit WestRock i.e., Smurfit WestRock and International Paper go up and down completely randomly.

Pair Corralation between Smurfit WestRock and International Paper

Allowing for the 90-day total investment horizon Smurfit WestRock plc is expected to generate 1.09 times more return on investment than International Paper. However, Smurfit WestRock is 1.09 times more volatile than International Paper. It trades about 0.11 of its potential returns per unit of risk. International Paper is currently generating about 0.09 per unit of risk. If you would invest  4,645  in Smurfit WestRock plc on September 16, 2024 and sell it today you would earn a total of  728.00  from holding Smurfit WestRock plc or generate 15.67% return on investment over 90 days.

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

Smurfit WestRock plc  vs.  International Paper

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.

International Paper

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Paper are ranked lower than 7 (%) 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 Smurfit WestRock and International Paper

The main advantage of trading using opposite Smurfit WestRock and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smurfit WestRock 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 Smurfit WestRock plc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.