Correlation Between Canfor and Interfor

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

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

Diversification Opportunities for Canfor and Interfor

0.94

Correlation Coefficient

Canfor  Interfor

Almost no diversification

The 3 months correlation between Canfor and Interfor is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Canfor and Interfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interfor 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 Interfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interfor has no effect on the direction of Canfor i.e., Canfor and Interfor go up and down completely randomly.

Pair Corralation between Canfor and Interfor

Assuming the 90 days horizon Canfor is expected to generate 0.75 times more return on investment than Interfor. However, Canfor is 1.34 times less risky than Interfor. It trades about -0.16 of its potential returns per unit of risk. Interfor is currently generating about -0.14 per unit of risk. If you would invest  1,284  in Canfor on November 28, 2024 and sell it today you would lose (234.00) from holding Canfor or give up 18.22% of portfolio value over 90 days.

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

Canfor  vs.  Interfor

Canfor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canfor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Interfor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Interfor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Canfor and Interfor

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

The idea behind Canfor and Interfor 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.