Correlation Between Homasote and West Fraser

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

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

Diversification Opportunities for Homasote and West Fraser

-0.51

Correlation Coefficient

Homasote  West Fraser

Excellent diversification

The 3 months correlation between Homasote and West is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Homasote Co 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 Homasote 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 Homasote Co 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 Homasote i.e., Homasote and West Fraser go up and down completely randomly.

Pair Corralation between Homasote and West Fraser

Given the investment horizon of 90 days Homasote Co is expected to generate 6.24 times more return on investment than West Fraser. However, Homasote is 6.24 times more volatile than West Fraser Timber. It trades about 0.34 of its potential returns per unit of risk. West Fraser Timber is currently generating about -0.26 per unit of risk. If you would invest  293.00  in Homasote Co on October 8, 2024 and sell it today you would earn a total of  172.00  from holding Homasote Co or generate 58.7% return on investment over 90 days.

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

Homasote Co  vs.  West Fraser Timber

Homasote

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Homasote Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Homasote exhibited solid returns over the last few months and may actually be approaching a breakup point.

West Fraser Timber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Homasote and West Fraser

The main advantage of trading using opposite Homasote and West Fraser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Homasote 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 Homasote Co 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.