Correlation Between Graphic Packaging and Fuwei Films

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

By analyzing existing cross correlation between Graphic Packaging Holding and Fuwei Films Holdings, you can compare the effects of market volatilities on Graphic Packaging and Fuwei Films 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 Graphic Packaging with a short position of Fuwei Films. Check out your portfolio center. Please also check ongoing floating volatility patterns of Graphic Packaging and Fuwei Films.

Diversification Opportunities for Graphic Packaging and Fuwei Films

0.55

Correlation Coefficient

Graphic Packaging  Fuwei Films

Very weak diversification

The 3 months correlation between Graphic and Fuwei is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Graphic Packaging Holding and Fuwei Films Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuwei Films Holdings and Graphic Packaging 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 Graphic Packaging Holding are associated (or correlated) with Fuwei Films. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuwei Films Holdings has no effect on the direction of Graphic Packaging i.e., Graphic Packaging and Fuwei Films go up and down completely randomly.

Pair Corralation between Graphic Packaging and Fuwei Films

Considering the 90-day investment horizon Graphic Packaging is expected to generate 4.7 times less return on investment than Fuwei Films. But when comparing it to its historical volatility, Graphic Packaging Holding is 2.95 times less risky than Fuwei Films. It trades about 0.04 of its potential returns per unit of risk. Fuwei Films Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  611.00  in Fuwei Films Holdings on January 20, 2024 and sell it today you would earn a total of  237.00  from holding Fuwei Films Holdings or generate 38.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	34.55%
Values	Daily Returns

Graphic Packaging Holding  vs.  Fuwei Films Holdings

Graphic Packaging Holding

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Graphic Packaging Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Graphic Packaging may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Fuwei Films Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fuwei Films Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical indicators, Fuwei Films is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Graphic Packaging and Fuwei Films

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

The idea behind Graphic Packaging Holding and Fuwei Films 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.