Correlation Between Avery Dennison and WestRock

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

By analyzing existing cross correlation between Avery Dennison Corp and WestRock Co, you can compare the effects of market volatilities on Avery Dennison and WestRock 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 Avery Dennison with a short position of WestRock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avery Dennison and WestRock.

Diversification Opportunities for Avery Dennison and WestRock

0.85

Correlation Coefficient

Avery Dennison  WestRock

Very poor diversification

The 3 months correlation between Avery and WestRock is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Avery Dennison Corp and WestRock Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WestRock and Avery Dennison 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 Avery Dennison Corp are associated (or correlated) with WestRock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WestRock has no effect on the direction of Avery Dennison i.e., Avery Dennison and WestRock go up and down completely randomly.

Pair Corralation between Avery Dennison and WestRock

Considering the 90-day investment horizon Avery Dennison Corp is expected to under-perform the WestRock. But the stock apears to be less risky and, when comparing its historical volatility, Avery Dennison Corp is 1.11 times less risky than WestRock. The stock trades about -0.12 of its potential returns per unit of risk. The WestRock Co is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  4,934  in WestRock Co on February 1, 2024 and sell it today you would lose (138.00) from holding WestRock Co or give up 2.8% of portfolio value over 90 days.

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

Avery Dennison Corp  vs.  WestRock Co

Avery Dennison Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avery Dennison Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Avery Dennison may actually be approaching a critical reversion point that can send shares even higher in June 2024.

WestRock

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WestRock Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, WestRock disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avery Dennison and WestRock

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

The idea behind Avery Dennison Corp and WestRock Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.