Correlation Between Summit Materials and Park Electrochemical

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

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

Diversification Opportunities for Summit Materials and Park Electrochemical

-0.61

Correlation Coefficient

Summit Materials  Park Electrochemical

Excellent diversification

The 3 months correlation between Summit and Park is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Summit Materials i.e., Summit Materials and Park Electrochemical go up and down completely randomly.

Pair Corralation between Summit Materials and Park Electrochemical

Considering the 90-day investment horizon Summit Materials is expected to generate 0.23 times more return on investment than Park Electrochemical. However, Summit Materials is 4.39 times less risky than Park Electrochemical. It trades about 0.23 of its potential returns per unit of risk. Park Electrochemical is currently generating about -0.09 per unit of risk. If you would invest  5,077  in Summit Materials on December 17, 2024 and sell it today you would earn a total of  172.00  from holding Summit Materials or generate 3.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	61.67%
Values	Daily Returns

Summit Materials  vs.  Park Electrochemical

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 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.

Park Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Electrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Summit Materials and Park Electrochemical

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

The idea behind Summit Materials and Park Electrochemical 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.