Correlation Between Summit Materials and Analog Devices

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

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

Diversification Opportunities for Summit Materials and Analog Devices

-0.72

Correlation Coefficient

Summit Materials  Analog Devices

Pay attention - limited upside

The 3 months correlation between Summit and Analog is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and Summit Materials 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 Summit Materials are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of Summit Materials i.e., Summit Materials and Analog Devices go up and down completely randomly.

Pair Corralation between Summit Materials and Analog Devices

Considering the 90-day investment horizon Summit Materials is expected to under-perform the Analog Devices. But the stock apears to be less risky and, when comparing its historical volatility, Summit Materials is 5.89 times less risky than Analog Devices. The stock trades about -0.19 of its potential returns per unit of risk. The Analog Devices is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  21,625  in Analog Devices on September 28, 2024 and sell it today you would lose (11.00) from holding Analog Devices or give up 0.05% of portfolio value over 90 days.

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

Summit Materials  vs.  Analog Devices

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.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Summit Materials and Analog Devices

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

The idea behind Summit Materials and Analog Devices 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.