Correlation Between Interfor and Simpson Manufacturing

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

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

Diversification Opportunities for Interfor and Simpson Manufacturing

0.72

Correlation Coefficient

Interfor  Simpson Manufacturing

Poor diversification

The 3 months correlation between Interfor and Simpson is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Interfor and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing and Interfor 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 Interfor are associated (or correlated) with Simpson Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simpson Manufacturing has no effect on the direction of Interfor i.e., Interfor and Simpson Manufacturing go up and down completely randomly.

Pair Corralation between Interfor and Simpson Manufacturing

Assuming the 90 days horizon Interfor is expected to under-perform the Simpson Manufacturing. In addition to that, Interfor is 1.89 times more volatile than Simpson Manufacturing. It trades about -0.04 of its total potential returns per unit of risk. Simpson Manufacturing is currently generating about -0.04 per unit of volatility. If you would invest  16,517  in Simpson Manufacturing on December 30, 2024 and sell it today you would lose (781.00) from holding Simpson Manufacturing or give up 4.73% of portfolio value over 90 days.

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

Interfor  vs.  Simpson Manufacturing

Interfor

Risk-Adjusted Performance

Very Weak

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

Simpson Manufacturing

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Interfor and Simpson Manufacturing

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

The idea behind Interfor and Simpson Manufacturing 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.