Correlation Between Graphic Packaging and International Paper

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

Diversification Opportunities for Graphic Packaging and International Paper

0.72

Correlation Coefficient

Graphic Packaging  International Paper

Poor diversification

The 3 months correlation between Graphic and International is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Graphic Packaging Holding and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 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 Graphic Packaging i.e., Graphic Packaging and International Paper go up and down completely randomly.

Pair Corralation between Graphic Packaging and International Paper

Considering the 90-day investment horizon Graphic Packaging Holding is expected to generate 1.09 times more return on investment than International Paper. However, Graphic Packaging is 1.09 times more volatile than International Paper. It trades about -0.26 of its potential returns per unit of risk. International Paper is currently generating about -0.71 per unit of risk. If you would invest  2,909  in Graphic Packaging Holding on January 27, 2024 and sell it today you would lose (179.00) from holding Graphic Packaging Holding or give up 6.15% of portfolio value over 90 days.

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

Graphic Packaging Holding  vs.  International Paper

Graphic Packaging Holding

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Graphic Packaging Holding are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Graphic Packaging may actually be approaching a critical reversion point that can send shares even higher in May 2024.

International Paper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Paper has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Graphic Packaging and International Paper

The main advantage of trading using opposite Graphic Packaging and International Paper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Graphic Packaging 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 Graphic Packaging Holding 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.