Can any of the company-specific risk be diversified away by investing in both Smurfit Kappa and Grand Canyon 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 Smurfit Kappa and Grand Canyon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smurfit Kappa Group and Grand Canyon Education, you can compare the effects of market volatilities on Smurfit Kappa and Grand Canyon 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 Smurfit Kappa with a short position of Grand Canyon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smurfit Kappa and Grand Canyon.
Diversification Opportunities for Smurfit Kappa and Grand Canyon
The 3 months correlation between Smurfit and Grand is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit Kappa Group and Grand Canyon Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand Canyon Education and Smurfit Kappa 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 Smurfit Kappa Group are associated (or correlated) with Grand Canyon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand Canyon Education has no effect on the direction of Smurfit Kappa i.e., Smurfit Kappa and Grand Canyon go up and down completely randomly.
Pair Corralation between Smurfit Kappa and Grand Canyon
Assuming the 90 days trading horizon Smurfit Kappa Group is expected to generate 0.28 times more return on investment than Grand Canyon. However, Smurfit Kappa Group is 3.56 times less risky than Grand Canyon. It trades about 0.51 of its potential returns per unit of risk. Grand Canyon Education is currently generating about 0.12 per unit of risk. If you would invest 4,315 in Smurfit Kappa Group on March 6, 2024 and sell it today you would earn a total of 221.00 from holding Smurfit Kappa Group or generate 5.12% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Smurfit Kappa Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Smurfit Kappa unveiled solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Grand Canyon Education are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Grand Canyon is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.