Correlation Between Summit Materials and Holcim

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

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

Diversification Opportunities for Summit Materials and Holcim

0.7

Correlation Coefficient

Summit Materials  Holcim

Poor diversification

The 3 months correlation between Summit and Holcim is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Holcim in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holcim 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 Holcim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holcim has no effect on the direction of Summit Materials i.e., Summit Materials and Holcim go up and down completely randomly.

Pair Corralation between Summit Materials and Holcim

Considering the 90-day investment horizon Summit Materials is expected to generate 1.82 times less return on investment than Holcim. But when comparing it to its historical volatility, Summit Materials is 5.1 times less risky than Holcim. It trades about 0.33 of its potential returns per unit of risk. Holcim is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,785  in Holcim on December 28, 2024 and sell it today you would earn a total of  1,399  from holding Holcim or generate 14.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	47.54%
Values	Daily Returns

Summit Materials  vs.  Holcim

Summit Materials

Risk-Adjusted Performance

Solid

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 unfluctuating basic indicators, Summit Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Holcim

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Holcim are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Holcim reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Materials and Holcim

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

The idea behind Summit Materials and Holcim 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.