Correlation Between Graphic Packaging and International Paper

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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

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Graphic and International is 0.56. 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 is expected to generate 1.1 times less return on investment than International Paper. But when comparing it to its historical volatility, Graphic Packaging Holding is 2.33 times less risky than International Paper. It trades about 0.39 of its potential returns per unit of risk. International Paper is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,462  in International Paper on December 30, 2023 and sell it today you would earn a total of  440.00  from holding International Paper or generate 12.71% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Graphic Packaging Holding  vs.  International Paper

 Performance 
       Timeline  
Graphic Packaging Holding 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Graphic Packaging Holding are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Graphic Packaging disclosed solid returns over the last few months and may actually be approaching a breakup point.
International Paper 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in International Paper are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, International Paper may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Graphic Packaging and International Paper Volatility Contrast

   Predicted Return Density   
       Returns  

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.
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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