Correlation Between Boise Cascade and Wells Fargo

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

By analyzing existing cross correlation between Boise Cascade and West Fraser Timber, you can compare the effects of market volatilities on Boise Cascade and Wells Fargo 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 Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boise Cascade and Wells Fargo.

Diversification Opportunities for Boise Cascade and Wells Fargo

0.63

Correlation Coefficient

Boise Cascade  Wells Fargo

Poor diversification

The 3 months correlation between Boise and Wells is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Boise Cascade and West Fraser Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Fraser Timber 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Fraser Timber has no effect on the direction of Boise Cascade i.e., Boise Cascade and Wells Fargo go up and down completely randomly.

Pair Corralation between Boise Cascade and Wells Fargo

Assuming the 90 days horizon Boise Cascade is expected to under-perform the Wells Fargo. In addition to that, Boise Cascade is 1.16 times more volatile than West Fraser Timber. It trades about -0.35 of its total potential returns per unit of risk. West Fraser Timber is currently generating about -0.26 per unit of volatility. If you would invest  8,960  in West Fraser Timber on September 24, 2024 and sell it today you would lose (840.00) from holding West Fraser Timber or give up 9.37% of portfolio value over 90 days.

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

Boise Cascade  vs.  West Fraser Timber

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.

West Fraser Timber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Wells Fargo 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 Wells Fargo

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

The idea behind Boise Cascade and West Fraser Timber 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.