Correlation Between Doman Building and Timbercreek Financial

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

By analyzing existing cross correlation between Doman Building Materials and Timbercreek Financial Corp, you can compare the effects of market volatilities on Doman Building and Timbercreek Financial 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 Doman Building with a short position of Timbercreek Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Doman Building and Timbercreek Financial.

Diversification Opportunities for Doman Building and Timbercreek Financial

0.93

Correlation Coefficient

Doman Building  Timbercreek Financial

Almost no diversification

The 3 months correlation between Doman and Timbercreek is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Doman Building Materials and Timbercreek Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timbercreek Financial and Doman Building 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 Doman Building Materials are associated (or correlated) with Timbercreek Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Timbercreek Financial has no effect on the direction of Doman Building i.e., Doman Building and Timbercreek Financial go up and down completely randomly.

Pair Corralation between Doman Building and Timbercreek Financial

Assuming the 90 days trading horizon Doman Building Materials is expected to under-perform the Timbercreek Financial. In addition to that, Doman Building is 1.61 times more volatile than Timbercreek Financial Corp. It trades about -0.15 of its total potential returns per unit of risk. Timbercreek Financial Corp is currently generating about -0.08 per unit of volatility. If you would invest  701.00  in Timbercreek Financial Corp on December 30, 2024 and sell it today you would lose (40.00) from holding Timbercreek Financial Corp or give up 5.71% of portfolio value over 90 days.

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

Doman Building Materials  vs.  Timbercreek Financial Corp

Doman Building Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Doman Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Timbercreek Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Doman Building and Timbercreek Financial

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

The idea behind Doman Building Materials and Timbercreek Financial Corp 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.

Check out your portfolio center.

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.