Correlation Between Smurfit WestRock and Virco Manufacturing

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

Diversification Opportunities for Smurfit WestRock and Virco Manufacturing

0.01

Correlation Coefficient

Smurfit WestRock  Virco Manufacturing

Significant diversification

The 3 months correlation between Smurfit and Virco is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit WestRock plc and Virco Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virco Manufacturing 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 Virco Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virco Manufacturing has no effect on the direction of Smurfit WestRock i.e., Smurfit WestRock and Virco Manufacturing go up and down completely randomly.

Pair Corralation between Smurfit WestRock and Virco Manufacturing

Allowing for the 90-day total investment horizon Smurfit WestRock plc is expected to generate 0.36 times more return on investment than Virco Manufacturing. However, Smurfit WestRock plc is 2.76 times less risky than Virco Manufacturing. It trades about -0.07 of its potential returns per unit of risk. Virco Manufacturing is currently generating about -0.5 per unit of risk. If you would invest  5,522  in Smurfit WestRock plc on October 4, 2024 and sell it today you would lose (136.00) from holding Smurfit WestRock plc or give up 2.46% of portfolio value over 90 days.

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

Smurfit WestRock plc  vs.  Virco Manufacturing

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 conflicting basic indicators, Smurfit WestRock showed solid returns over the last few months and may actually be approaching a breakup point.

Virco Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virco Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Smurfit WestRock and Virco Manufacturing

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

The idea behind Smurfit WestRock plc and Virco Manufacturing 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.