Correlation Between Conifex Timber and West Fraser

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

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

Diversification Opportunities for Conifex Timber and West Fraser

0.09

Correlation Coefficient

Conifex Timber  West Fraser

Significant diversification

The 3 months correlation between Conifex and West is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Conifex Timber 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 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 West Fraser. 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 Conifex Timber i.e., Conifex Timber and West Fraser go up and down completely randomly.

Pair Corralation between Conifex Timber and West Fraser

Assuming the 90 days horizon Conifex Timber is expected to generate 0.9 times more return on investment than West Fraser. However, Conifex Timber is 1.11 times less risky than West Fraser. It trades about 0.17 of its potential returns per unit of risk. West Fraser Timber is currently generating about 0.06 per unit of risk. If you would invest  28.00  in Conifex Timber on September 12, 2024 and sell it today you would earn a total of  5.00  from holding Conifex Timber or generate 17.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Conifex Timber  vs.  West Fraser Timber

Conifex Timber

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Conifex Timber are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Conifex Timber reported solid returns over the last few months and may actually be approaching a breakup point.

West Fraser Timber

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Fraser Timber are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, West Fraser may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Conifex Timber and West Fraser

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

The idea behind Conifex Timber 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.