Correlation Between Western Asset and Summit Materials

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

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

Diversification Opportunities for Western Asset and Summit Materials

-0.73

Correlation Coefficient

Western Asset  Summit Materials

Pay attention - limited upside

The 3 months correlation between Western and Summit is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and Western Asset 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 Western Asset Investment are associated (or correlated) with Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Western Asset i.e., Western Asset and Summit Materials go up and down completely randomly.

Pair Corralation between Western Asset and Summit Materials

Considering the 90-day investment horizon Western Asset Investment is expected to under-perform the Summit Materials. But the stock apears to be less risky and, when comparing its historical volatility, Western Asset Investment is 4.03 times less risky than Summit Materials. The stock trades about 0.0 of its potential returns per unit of risk. The Summit Materials is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,681  in Summit Materials on October 6, 2024 and sell it today you would earn a total of  1,414  from holding Summit Materials or generate 38.41% return on investment over 90 days.

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

Western Asset Investment  vs.  Summit Materials

Western Asset Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Summit Materials

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Asset and Summit Materials

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

The idea behind Western Asset Investment and Summit Materials 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.