Correlation Between Summit Materials and Big Yellow

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

By analyzing existing cross correlation between Summit Materials and Big Yellow Group, you can compare the effects of market volatilities on Summit Materials and Big Yellow 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 Summit Materials with a short position of Big Yellow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and Big Yellow.

Diversification Opportunities for Summit Materials and Big Yellow

0.78

Correlation Coefficient

Summit Materials  Big Yellow

Poor diversification

The 3 months correlation between Summit and Big is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Big Yellow Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Yellow Group and Summit Materials 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 Summit Materials are associated (or correlated) with Big Yellow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Yellow Group has no effect on the direction of Summit Materials i.e., Summit Materials and Big Yellow go up and down completely randomly.

Pair Corralation between Summit Materials and Big Yellow

Assuming the 90 days trading horizon Summit Materials is expected to generate 3.38 times less return on investment than Big Yellow. But when comparing it to its historical volatility, Summit Materials is 1.32 times less risky than Big Yellow. It trades about 0.15 of its potential returns per unit of risk. Big Yellow Group is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  2,790  in Big Yellow Group on December 20, 2024 and sell it today you would earn a total of  800.00  from holding Big Yellow Group or generate 28.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	57.63%
Values	Daily Returns

Summit Materials  vs.  Big Yellow Group

Summit Materials

Risk-Adjusted Performance

Good

Over the last 90 days Summit Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, Summit Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Big Yellow Group

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Big Yellow Group are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Big Yellow reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Materials and Big Yellow

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

The idea behind Summit Materials and Big Yellow Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.