Correlation Between Nature Wood and Simpson Manufacturing

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

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

Diversification Opportunities for Nature Wood and Simpson Manufacturing

0.37

Correlation Coefficient

Nature Wood  Simpson Manufacturing

Weak diversification

The 3 months correlation between Nature and Simpson is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Nature Wood Group and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing and Nature Wood 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 Nature Wood Group 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 Nature Wood i.e., Nature Wood and Simpson Manufacturing go up and down completely randomly.

Pair Corralation between Nature Wood and Simpson Manufacturing

Given the investment horizon of 90 days Nature Wood Group is expected to under-perform the Simpson Manufacturing. In addition to that, Nature Wood is 2.01 times more volatile than Simpson Manufacturing. It trades about -0.03 of its total potential returns per unit of risk. Simpson Manufacturing is currently generating about 0.08 per unit of volatility. If you would invest  17,379  in Simpson Manufacturing on September 2, 2024 and sell it today you would earn a total of  1,461  from holding Simpson Manufacturing or generate 8.41% return on investment over 90 days.

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

Nature Wood Group  vs.  Simpson Manufacturing

Nature Wood Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nature Wood Group 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 persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Simpson Manufacturing

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Simpson Manufacturing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Simpson Manufacturing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nature Wood and Simpson Manufacturing

The main advantage of trading using opposite Nature Wood and Simpson Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nature Wood 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 Nature Wood Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.