Correlation Between FirstService Corp and Winpak

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

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

Diversification Opportunities for FirstService Corp and Winpak

0.81

Correlation Coefficient

FirstService Corp  Winpak

Very poor diversification

The 3 months correlation between FirstService and Winpak is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding FirstService Corp and Winpak in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Winpak and FirstService Corp 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 FirstService Corp are associated (or correlated) with Winpak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Winpak has no effect on the direction of FirstService Corp i.e., FirstService Corp and Winpak go up and down completely randomly.

Pair Corralation between FirstService Corp and Winpak

Assuming the 90 days trading horizon FirstService Corp is expected to generate 0.77 times more return on investment than Winpak. However, FirstService Corp is 1.3 times less risky than Winpak. It trades about 0.2 of its potential returns per unit of risk. Winpak is currently generating about 0.1 per unit of risk. If you would invest  24,146  in FirstService Corp on September 3, 2024 and sell it today you would earn a total of  3,166  from holding FirstService Corp or generate 13.11% return on investment over 90 days.

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

FirstService Corp  vs.  Winpak

FirstService Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FirstService Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, FirstService Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Winpak

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Winpak are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward-looking signals, Winpak may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FirstService Corp and Winpak

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

The idea behind FirstService Corp and Winpak 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.