Correlation Between Canfor and CAE

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

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

Diversification Opportunities for Canfor and CAE

0.57

Correlation Coefficient

Canfor  CAE

Very weak diversification

The 3 months correlation between Canfor and CAE is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Canfor and CAE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAE Inc and Canfor 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 Canfor are associated (or correlated) with CAE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAE Inc has no effect on the direction of Canfor i.e., Canfor and CAE go up and down completely randomly.

Pair Corralation between Canfor and CAE

Assuming the 90 days trading horizon Canfor is expected to generate 1.39 times less return on investment than CAE. In addition to that, Canfor is 1.07 times more volatile than CAE Inc. It trades about 0.17 of its total potential returns per unit of risk. CAE Inc is currently generating about 0.25 per unit of volatility. If you would invest  2,395  in CAE Inc on September 3, 2024 and sell it today you would earn a total of  896.00  from holding CAE Inc or generate 37.41% return on investment over 90 days.

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

Canfor  vs.  CAE Inc

Canfor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canfor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canfor displayed solid returns over the last few months and may actually be approaching a breakup point.

CAE Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CAE Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, CAE displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canfor and CAE

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

The idea behind Canfor and CAE Inc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.