Correlation Between Summit Materials and CeoTronics

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

By analyzing existing cross correlation between Summit Materials and CeoTronics AG, you can compare the effects of market volatilities on Summit Materials and CeoTronics 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 CeoTronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and CeoTronics.

Diversification Opportunities for Summit Materials and CeoTronics

0.48

Correlation Coefficient

Summit Materials  CeoTronics

Very weak diversification

The 3 months correlation between Summit and CeoTronics is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and CeoTronics AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CeoTronics AG 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 CeoTronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CeoTronics AG has no effect on the direction of Summit Materials i.e., Summit Materials and CeoTronics go up and down completely randomly.

Pair Corralation between Summit Materials and CeoTronics

Assuming the 90 days trading horizon Summit Materials is expected to generate 0.44 times more return on investment than CeoTronics. However, Summit Materials is 2.28 times less risky than CeoTronics. It trades about 0.21 of its potential returns per unit of risk. CeoTronics AG is currently generating about -0.49 per unit of risk. If you would invest  4,800  in Summit Materials on October 6, 2024 and sell it today you would earn a total of  140.00  from holding Summit Materials or generate 2.92% return on investment over 90 days.

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

Summit Materials  vs.  CeoTronics AG

Summit Materials

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

CeoTronics AG

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CeoTronics AG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, CeoTronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Summit Materials and CeoTronics

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

The idea behind Summit Materials and CeoTronics AG 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.