Correlation Between Conifex Timber and Taiga Building

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

By analyzing existing cross correlation between Conifex Timber and Taiga Building Products, you can compare the effects of market volatilities on Conifex Timber and Taiga Building 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 Conifex Timber with a short position of Taiga Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Conifex Timber and Taiga Building.

Diversification Opportunities for Conifex Timber and Taiga Building

0.06

Correlation Coefficient

Conifex Timber  Taiga Building

Significant diversification

The 3 months correlation between Conifex and Taiga is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Conifex Timber and Taiga Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiga Building Products and Conifex Timber 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 Conifex Timber are associated (or correlated) with Taiga Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiga Building Products has no effect on the direction of Conifex Timber i.e., Conifex Timber and Taiga Building go up and down completely randomly.

Pair Corralation between Conifex Timber and Taiga Building

Assuming the 90 days trading horizon Conifex Timber is expected to generate 4.2 times more return on investment than Taiga Building. However, Conifex Timber is 4.2 times more volatile than Taiga Building Products. It trades about 0.05 of its potential returns per unit of risk. Taiga Building Products is currently generating about -0.04 per unit of risk. If you would invest  31.00  in Conifex Timber on December 30, 2024 and sell it today you would earn a total of  3.00  from holding Conifex Timber or generate 9.68% return on investment over 90 days.

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

Conifex Timber  vs.  Taiga Building Products

Conifex Timber

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Conifex Timber are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Conifex Timber displayed solid returns over the last few months and may actually be approaching a breakup point.

Taiga Building Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiga Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Taiga Building is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Conifex Timber and Taiga Building

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

The idea behind Conifex Timber and Taiga Building Products 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.