Correlation Between Karat Packaging and WestRock

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

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

Diversification Opportunities for Karat Packaging and WestRock

0.66

Correlation Coefficient

Karat Packaging  WestRock

Poor diversification

The 3 months correlation between Karat and WestRock is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Karat Packaging and WestRock Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WestRock and Karat 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 Karat Packaging are associated (or correlated) with WestRock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WestRock has no effect on the direction of Karat Packaging i.e., Karat Packaging and WestRock go up and down completely randomly.

Pair Corralation between Karat Packaging and WestRock

Considering the 90-day investment horizon Karat Packaging is expected to generate 1.5 times more return on investment than WestRock. However, Karat Packaging is 1.5 times more volatile than WestRock Co. It trades about 0.05 of its potential returns per unit of risk. WestRock Co is currently generating about 0.02 per unit of risk. If you would invest  1,502  in Karat Packaging on February 1, 2024 and sell it today you would earn a total of  1,208  from holding Karat Packaging or generate 80.43% return on investment over 90 days.

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

Karat Packaging  vs.  WestRock Co

Karat Packaging

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Karat Packaging are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Karat Packaging unveiled solid returns over the last few months and may actually be approaching a breakup point.

WestRock

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WestRock Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, WestRock disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Karat Packaging and WestRock

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

The idea behind Karat Packaging and WestRock Co 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..