Correlation Between First and Summit Materials

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

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

Diversification Opportunities for First and Summit Materials

0.35

Correlation Coefficient

First  Summit Materials

Weak diversification

The 3 months correlation between First and Summit is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Summit Materials Cl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and First 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 First Class Metals 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 First i.e., First and Summit Materials go up and down completely randomly.

Pair Corralation between First and Summit Materials

Assuming the 90 days trading horizon First is expected to generate 22.66 times less return on investment than Summit Materials. In addition to that, First is 2.27 times more volatile than Summit Materials Cl. It trades about 0.0 of its total potential returns per unit of risk. Summit Materials Cl is currently generating about 0.26 per unit of volatility. If you would invest  3,681  in Summit Materials Cl on October 7, 2024 and sell it today you would earn a total of  1,423  from holding Summit Materials Cl or generate 38.66% return on investment over 90 days.

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

First Class Metals  vs.  Summit Materials Cl

First Class Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Summit Materials

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials Cl are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First and Summit Materials

The main advantage of trading using opposite First and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First 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 First Class Metals and Summit Materials Cl 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.