Correlation Between Summit Materials and UL Solutions

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

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

Diversification Opportunities for Summit Materials and UL Solutions

0.33

Correlation Coefficient

Summit Materials  UL Solutions

Weak diversification

The 3 months correlation between Summit and ULS is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and UL Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UL Solutions 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 UL Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UL Solutions has no effect on the direction of Summit Materials i.e., Summit Materials and UL Solutions go up and down completely randomly.

Pair Corralation between Summit Materials and UL Solutions

Considering the 90-day investment horizon Summit Materials is expected to generate 1.16 times less return on investment than UL Solutions. But when comparing it to its historical volatility, Summit Materials is 3.94 times less risky than UL Solutions. It trades about 0.28 of its potential returns per unit of risk. UL Solutions is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,099  in UL Solutions on December 26, 2024 and sell it today you would earn a total of  376.00  from holding UL Solutions or generate 7.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	51.67%
Values	Daily Returns

Summit Materials  vs.  UL Solutions

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.

UL Solutions

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in UL Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, UL Solutions may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Summit Materials and UL Solutions

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

The idea behind Summit Materials and UL Solutions 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.