Correlation Between Summit Materials and Coupang LLC

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

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

Diversification Opportunities for Summit Materials and Coupang LLC

0.02

Correlation Coefficient

Summit Materials  Coupang LLC

Significant diversification

The 3 months correlation between Summit and Coupang is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Coupang LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coupang LLC 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 Coupang LLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coupang LLC has no effect on the direction of Summit Materials i.e., Summit Materials and Coupang LLC go up and down completely randomly.

Pair Corralation between Summit Materials and Coupang LLC

Considering the 90-day investment horizon Summit Materials is expected to generate 0.2 times more return on investment than Coupang LLC. However, Summit Materials is 4.96 times less risky than Coupang LLC. It trades about 0.18 of its potential returns per unit of risk. Coupang LLC is currently generating about 0.0 per unit of risk. If you would invest  5,094  in Summit Materials on November 29, 2024 and sell it today you would earn a total of  155.00  from holding Summit Materials or generate 3.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	83.05%
Values	Daily Returns

Summit Materials  vs.  Coupang LLC

Summit Materials

Risk-Adjusted Performance

Good

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

Coupang LLC

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Summit Materials and Coupang LLC

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

The idea behind Summit Materials and Coupang LLC 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.