Correlation Between Smurfit Kappa and LEGAL GENERAL

Can any of the company-specific risk be diversified away by investing in both Smurfit Kappa and LEGAL GENERAL 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 LEGAL GENERAL 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 LEGAL GENERAL, you can compare the effects of market volatilities on Smurfit Kappa and LEGAL GENERAL 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 LEGAL GENERAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smurfit Kappa and LEGAL GENERAL.

Diversification Opportunities for Smurfit Kappa and LEGAL GENERAL

0.1

Correlation Coefficient

Smurfit Kappa  LEGAL GENERAL

Average diversification

The 3 months correlation between Smurfit and LEGAL is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit Kappa Group and LEGAL GENERAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEGAL GENERAL 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 LEGAL GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEGAL GENERAL has no effect on the direction of Smurfit Kappa i.e., Smurfit Kappa and LEGAL GENERAL go up and down completely randomly.

Pair Corralation between Smurfit Kappa and LEGAL GENERAL

Assuming the 90 days horizon Smurfit Kappa Group is expected to generate 2.32 times more return on investment than LEGAL GENERAL. However, Smurfit Kappa is 2.32 times more volatile than LEGAL GENERAL. It trades about 0.11 of its potential returns per unit of risk. LEGAL GENERAL is currently generating about 0.01 per unit of risk. If you would invest  4,198  in Smurfit Kappa Group on September 23, 2024 and sell it today you would earn a total of  782.00  from holding Smurfit Kappa Group or generate 18.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Smurfit Kappa Group  vs.  LEGAL GENERAL

Smurfit Kappa Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smurfit Kappa Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Smurfit Kappa reported solid returns over the last few months and may actually be approaching a breakup point.

LEGAL GENERAL

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smurfit Kappa and LEGAL GENERAL

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

The idea behind Smurfit Kappa Group and LEGAL GENERAL 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.