Correlation Between South32 and Canfor

Can any of the company-specific risk be diversified away by investing in both South32 and Canfor 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 South32 and Canfor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between South32 Limited and Canfor, you can compare the effects of market volatilities on South32 and Canfor 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 South32 with a short position of Canfor. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and Canfor.

Diversification Opportunities for South32 and Canfor

0.15

Correlation Coefficient

South32  Canfor

Average diversification

The 3 months correlation between South32 and Canfor is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding South32 Limited and Canfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor and South32 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 South32 Limited are associated (or correlated) with Canfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor has no effect on the direction of South32 i.e., South32 and Canfor go up and down completely randomly.

Pair Corralation between South32 and Canfor

Assuming the 90 days horizon South32 Limited is expected to under-perform the Canfor. In addition to that, South32 is 1.3 times more volatile than Canfor. It trades about -0.04 of its total potential returns per unit of risk. Canfor is currently generating about 0.02 per unit of volatility. If you would invest  1,038  in Canfor on December 30, 2024 and sell it today you would earn a total of  8.00  from holding Canfor or generate 0.77% return on investment over 90 days.

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

South32 Limited  vs.  Canfor

South32 Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days South32 Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, South32 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Canfor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canfor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canfor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with South32 and Canfor

The main advantage of trading using opposite South32 and Canfor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, Canfor 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 Canfor will offset losses from the drop in Canfor's long position.

The idea behind South32 Limited and Canfor 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.