Correlation Between Pembina Pipeline and West Fraser

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

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

Diversification Opportunities for Pembina Pipeline and West Fraser

-0.19

Correlation Coefficient

Pembina Pipeline  West Fraser

Good diversification

The 3 months correlation between Pembina and West is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Pembina Pipeline Corp 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 Pembina Pipeline 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 Pembina Pipeline Corp 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 Pembina Pipeline i.e., Pembina Pipeline and West Fraser go up and down completely randomly.

Pair Corralation between Pembina Pipeline and West Fraser

Assuming the 90 days trading horizon Pembina Pipeline Corp is expected to generate 0.25 times more return on investment than West Fraser. However, Pembina Pipeline Corp is 3.93 times less risky than West Fraser. It trades about -0.22 of its potential returns per unit of risk. West Fraser Timber is currently generating about -0.3 per unit of risk. If you would invest  2,304  in Pembina Pipeline Corp on December 4, 2024 and sell it today you would lose (41.00) from holding Pembina Pipeline Corp or give up 1.78% of portfolio value over 90 days.

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

Pembina Pipeline Corp  vs.  West Fraser Timber

Pembina Pipeline Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pembina Pipeline Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Pembina Pipeline is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Pembina Pipeline and West Fraser

The main advantage of trading using opposite Pembina Pipeline and West Fraser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pembina Pipeline 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 Pembina Pipeline Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.