Correlation Between SIR Royalty and Richards Packaging

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

By analyzing existing cross correlation between SIR Royalty Income and Richards Packaging Income, you can compare the effects of market volatilities on SIR Royalty and Richards Packaging 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 SIR Royalty with a short position of Richards Packaging. Check out your portfolio center. Please also check ongoing floating volatility patterns of SIR Royalty and Richards Packaging.

Diversification Opportunities for SIR Royalty and Richards Packaging

0.85

Correlation Coefficient

SIR Royalty  Richards Packaging

Very poor diversification

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

Pair Corralation between SIR Royalty and Richards Packaging

Assuming the 90 days trading horizon SIR Royalty is expected to generate 1.44 times less return on investment than Richards Packaging. But when comparing it to its historical volatility, SIR Royalty Income is 1.03 times less risky than Richards Packaging. It trades about 0.19 of its potential returns per unit of risk. Richards Packaging Income is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,723  in Richards Packaging Income on April 23, 2025 and sell it today you would earn a total of  558.00  from holding Richards Packaging Income or generate 20.49% return on investment over 90 days.

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

SIR Royalty Income  vs.  Richards Packaging Income

SIR Royalty Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIR Royalty Income are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SIR Royalty sustained solid returns over the last few months and may actually be approaching a breakup point.

Richards Packaging Income

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Richards Packaging Income are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating forward indicators, Richards Packaging sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIR Royalty and Richards Packaging

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

The idea behind SIR Royalty Income and Richards Packaging Income 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.