Correlation Between Smurfit WestRock and Energy Focu

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

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

Diversification Opportunities for Smurfit WestRock and Energy Focu

0.35

Correlation Coefficient

Smurfit WestRock  Energy Focu

Weak diversification

The 3 months correlation between Smurfit and Energy is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit WestRock plc and Energy Focu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Focu and Smurfit WestRock 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 WestRock plc are associated (or correlated) with Energy Focu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Focu has no effect on the direction of Smurfit WestRock i.e., Smurfit WestRock and Energy Focu go up and down completely randomly.

Pair Corralation between Smurfit WestRock and Energy Focu

Allowing for the 90-day total investment horizon Smurfit WestRock plc is expected to generate 0.48 times more return on investment than Energy Focu. However, Smurfit WestRock plc is 2.09 times less risky than Energy Focu. It trades about 0.05 of its potential returns per unit of risk. Energy Focu is currently generating about 0.01 per unit of risk. If you would invest  3,762  in Smurfit WestRock plc on September 23, 2024 and sell it today you would earn a total of  1,566  from holding Smurfit WestRock plc or generate 41.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	69.01%
Values	Daily Returns

Smurfit WestRock plc  vs.  Energy Focu

Smurfit WestRock plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smurfit WestRock plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Smurfit WestRock showed solid returns over the last few months and may actually be approaching a breakup point.

Energy Focu

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Focu are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Energy Focu may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Smurfit WestRock and Energy Focu

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

The idea behind Smurfit WestRock plc and Energy Focu 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.