Correlation Between Summit Materials and Monarch Cement

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

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

Diversification Opportunities for Summit Materials and Monarch Cement

0.51

Correlation Coefficient

Summit Materials  Monarch Cement

Very weak diversification

The 3 months correlation between Summit and Monarch is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and The Monarch Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monarch Cement 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 Monarch Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monarch Cement has no effect on the direction of Summit Materials i.e., Summit Materials and Monarch Cement go up and down completely randomly.

Pair Corralation between Summit Materials and Monarch Cement

Considering the 90-day investment horizon Summit Materials is expected to generate 0.35 times more return on investment than Monarch Cement. However, Summit Materials is 2.87 times less risky than Monarch Cement. It trades about 0.33 of its potential returns per unit of risk. The Monarch Cement is currently generating about 0.04 per unit of risk. If you would invest  5,054  in Summit Materials on December 28, 2024 and sell it today you would earn a total of  195.00  from holding Summit Materials or generate 3.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	48.33%
Values	Daily Returns

Summit Materials  vs.  The Monarch Cement

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.

Monarch Cement

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Monarch Cement are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Monarch Cement is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Summit Materials and Monarch Cement

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

The idea behind Summit Materials and The Monarch Cement 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.