Correlation Between Stantec and Dorel Industries

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

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

Diversification Opportunities for Stantec and Dorel Industries

-0.28

Correlation Coefficient

Stantec  Dorel Industries

Very good diversification

The 3 months correlation between Stantec and Dorel is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Stantec and Dorel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorel Industries and Stantec 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 Stantec are associated (or correlated) with Dorel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorel Industries has no effect on the direction of Stantec i.e., Stantec and Dorel Industries go up and down completely randomly.

Pair Corralation between Stantec and Dorel Industries

Assuming the 90 days trading horizon Stantec is expected to under-perform the Dorel Industries. But the stock apears to be less risky and, when comparing its historical volatility, Stantec is 5.98 times less risky than Dorel Industries. The stock trades about -0.38 of its potential returns per unit of risk. The Dorel Industries is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  390.00  in Dorel Industries on October 13, 2024 and sell it today you would earn a total of  90.00  from holding Dorel Industries or generate 23.08% return on investment over 90 days.

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

Stantec  vs.  Dorel Industries

Stantec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stantec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Stantec is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Dorel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dorel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Stantec and Dorel Industries

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

The idea behind Stantec and Dorel Industries 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..