Correlation Between Alphabet and West Fraser

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

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

Diversification Opportunities for Alphabet and West Fraser

0.38

Correlation Coefficient

Alphabet  West Fraser

Weak diversification

The 3 months correlation between Alphabet and West is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc CDR 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 Alphabet 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 Alphabet Inc CDR 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 Alphabet i.e., Alphabet and West Fraser go up and down completely randomly.

Pair Corralation between Alphabet and West Fraser

Assuming the 90 days trading horizon Alphabet Inc CDR is expected to generate 1.47 times more return on investment than West Fraser. However, Alphabet is 1.47 times more volatile than West Fraser Timber. It trades about -0.04 of its potential returns per unit of risk. West Fraser Timber is currently generating about -0.17 per unit of risk. If you would invest  3,104  in Alphabet Inc CDR on December 10, 2024 and sell it today you would lose (191.00) from holding Alphabet Inc CDR or give up 6.15% of portfolio value over 90 days.

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

Alphabet Inc CDR  vs.  West Fraser Timber

Alphabet CDR

Risk-Adjusted Performance

Very Weak

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

West Fraser Timber

Risk-Adjusted Performance

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental 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.

Pair Trading with Alphabet and West Fraser

The main advantage of trading using opposite Alphabet and West Fraser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc CDR 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.