Correlation Between Boise Cascade and UFP Industries

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

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

Diversification Opportunities for Boise Cascade and UFP Industries

0.9

Correlation Coefficient

Boise Cascade  UFP Industries

Almost no diversification

The 3 months correlation between Boise and UFP is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Boise Cascade and UFP Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UFP Industries and Boise Cascade 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 Boise Cascade are associated (or correlated) with UFP Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UFP Industries has no effect on the direction of Boise Cascade i.e., Boise Cascade and UFP Industries go up and down completely randomly.

Pair Corralation between Boise Cascade and UFP Industries

Assuming the 90 days horizon Boise Cascade is expected to generate 1.16 times more return on investment than UFP Industries. However, Boise Cascade is 1.16 times more volatile than UFP Industries. It trades about -0.35 of its potential returns per unit of risk. UFP Industries is currently generating about -0.41 per unit of risk. If you would invest  13,684  in Boise Cascade on September 24, 2024 and sell it today you would lose (1,929) from holding Boise Cascade or give up 14.1% of portfolio value over 90 days.

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

Boise Cascade  vs.  UFP Industries

Boise Cascade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Boise Cascade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Boise Cascade is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

UFP Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UFP Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, UFP Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Boise Cascade and UFP Industries

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

The idea behind Boise Cascade and UFP Industries 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..