Correlation Between Dupont De and West Fraser

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

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

Diversification Opportunities for Dupont De and West Fraser

0.72

Correlation Coefficient

Dupont De  West Fraser

Poor diversification

The 3 months correlation between Dupont and West is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dupont De Nemours 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 Dupont De 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 Dupont De Nemours 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 Dupont De i.e., Dupont De and West Fraser go up and down completely randomly.

Pair Corralation between Dupont De and West Fraser

Allowing for the 90-day total investment horizon Dupont De is expected to generate 60.1 times less return on investment than West Fraser. But when comparing it to its historical volatility, Dupont De Nemours is 1.18 times less risky than West Fraser. It trades about 0.0 of its potential returns per unit of risk. West Fraser Timber is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,822  in West Fraser Timber on August 30, 2024 and sell it today you would earn a total of  995.00  from holding West Fraser Timber or generate 11.28% return on investment over 90 days.

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

Dupont De Nemours  vs.  West Fraser Timber

Dupont De Nemours

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dupont De Nemours has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Dupont De is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

West Fraser Timber

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in West Fraser Timber are ranked lower than 8 (%) 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 December 2024.

Pair Trading with Dupont De and West Fraser

The main advantage of trading using opposite Dupont De and West Fraser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dupont De 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 Dupont De Nemours 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.