Correlation Between Interfor and West Fraser

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

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

Diversification Opportunities for Interfor and West Fraser

0.71

Correlation Coefficient

Interfor  West Fraser

Poor diversification

The 3 months correlation between Interfor and West is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Interfor 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 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 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 Interfor i.e., Interfor and West Fraser go up and down completely randomly.

Pair Corralation between Interfor and West Fraser

Assuming the 90 days horizon Interfor is expected to generate 1.96 times more return on investment than West Fraser. However, Interfor is 1.96 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 -0.11 per unit of risk. If you would invest  1,134  in Interfor on December 29, 2024 and sell it today you would lose (100.00) from holding Interfor or give up 8.82% of portfolio value over 90 days.

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

Interfor  vs.  West Fraser Timber

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.

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. 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 Interfor and West Fraser

The main advantage of trading using opposite Interfor and West Fraser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Interfor 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 Interfor 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 Transaction History module to view history of all your transactions and understand their impact on performance.