Correlation Between Loandepot and Summit Materials

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

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

Diversification Opportunities for Loandepot and Summit Materials

-0.19

Correlation Coefficient

Loandepot  Summit Materials

Good diversification

The 3 months correlation between Loandepot and Summit is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Loandepot and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and Loandepot 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 Loandepot 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 Loandepot i.e., Loandepot and Summit Materials go up and down completely randomly.

Pair Corralation between Loandepot and Summit Materials

Considering the 90-day investment horizon Loandepot is expected to under-perform the Summit Materials. In addition to that, Loandepot is 12.09 times more volatile than Summit Materials. It trades about -0.25 of its total potential returns per unit of risk. Summit Materials is currently generating about -0.16 per unit of volatility. If you would invest  5,094  in Summit Materials on September 29, 2024 and sell it today you would lose (38.00) from holding Summit Materials or give up 0.75% of portfolio value over 90 days.

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

Loandepot  vs.  Summit Materials

Loandepot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loandepot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Summit Materials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loandepot and Summit Materials

The main advantage of trading using opposite Loandepot and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Loandepot 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 Loandepot 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.