Correlation Between Summit Materials and Verde Clean

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

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

Diversification Opportunities for Summit Materials and Verde Clean

0.02

Correlation Coefficient

Summit Materials  Verde Clean

Significant diversification

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

Pair Corralation between Summit Materials and Verde Clean

Considering the 90-day investment horizon Summit Materials is expected to generate 0.14 times more return on investment than Verde Clean. However, Summit Materials is 7.07 times less risky than Verde Clean. It trades about -0.23 of its potential returns per unit of risk. Verde Clean Fuels is currently generating about -0.11 per unit of risk. If you would invest  5,166  in Summit Materials on September 23, 2024 and sell it today you would lose (116.00) from holding Summit Materials or give up 2.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Summit Materials  vs.  Verde Clean Fuels

Summit Materials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Verde Clean Fuels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verde Clean Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Verde Clean is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Summit Materials and Verde Clean

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

The idea behind Summit Materials and Verde Clean Fuels 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.