Correlation Between Sealed Air and Talen Energy

Can any of the company-specific risk be diversified away by investing in both Sealed Air and Talen Energy 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 Sealed Air and Talen Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sealed Air and Talen Energy, you can compare the effects of market volatilities on Sealed Air and Talen Energy 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 Sealed Air with a short position of Talen Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sealed Air and Talen Energy.

Diversification Opportunities for Sealed Air and Talen Energy

0.11

Correlation Coefficient

Sealed Air  Talen Energy

Average diversification

The 3 months correlation between Sealed and Talen is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Sealed Air and Talen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talen Energy and Sealed Air 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 Sealed Air are associated (or correlated) with Talen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talen Energy has no effect on the direction of Sealed Air i.e., Sealed Air and Talen Energy go up and down completely randomly.

Pair Corralation between Sealed Air and Talen Energy

Considering the 90-day investment horizon Sealed Air is expected to generate 0.55 times more return on investment than Talen Energy. However, Sealed Air is 1.83 times less risky than Talen Energy. It trades about -0.14 of its potential returns per unit of risk. Talen Energy is currently generating about -0.08 per unit of risk. If you would invest  3,575  in Sealed Air on September 27, 2024 and sell it today you would lose (146.00) from holding Sealed Air or give up 4.08% of portfolio value over 90 days.

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

Sealed Air  vs.  Talen Energy

Sealed Air

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sealed Air has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Sealed Air is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Talen Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sealed Air and Talen Energy

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

The idea behind Sealed Air and Talen Energy 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.