Correlation Between FORWARD AIR and Summit Materials

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

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

Diversification Opportunities for FORWARD AIR and Summit Materials

-0.45

Correlation Coefficient

FORWARD AIR  Summit Materials

Very good diversification

The 3 months correlation between FORWARD and Summit is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding FORWARD AIR P and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and FORWARD AIR 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 FORWARD AIR P are associated (or correlated) with Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of FORWARD AIR i.e., FORWARD AIR and Summit Materials go up and down completely randomly.

Pair Corralation between FORWARD AIR and Summit Materials

Assuming the 90 days horizon FORWARD AIR is expected to generate 5.61 times less return on investment than Summit Materials. In addition to that, FORWARD AIR is 2.2 times more volatile than Summit Materials. It trades about 0.02 of its total potential returns per unit of risk. Summit Materials is currently generating about 0.2 per unit of volatility. If you would invest  3,940  in Summit Materials on October 25, 2024 and sell it today you would earn a total of  1,060  from holding Summit Materials or generate 26.9% return on investment over 90 days.

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

FORWARD AIR P  vs.  Summit Materials

FORWARD AIR P

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FORWARD AIR P are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FORWARD AIR is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Summit Materials

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FORWARD AIR and Summit Materials

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

The idea behind FORWARD AIR P and Summit Materials 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.