Correlation Between UFP Industries and Boise Cascade

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

By analyzing existing cross correlation between UFP Industries and Boise Cascade, you can compare the effects of market volatilities on UFP Industries and Boise Cascade 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 UFP Industries with a short position of Boise Cascade. Check out your portfolio center. Please also check ongoing floating volatility patterns of UFP Industries and Boise Cascade.

Diversification Opportunities for UFP Industries and Boise Cascade

0.9

Correlation Coefficient

UFP Industries  Boise Cascade

Almost no diversification

The 3 months correlation between UFP and Boise is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding UFP Industries and Boise Cascade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boise Cascade and UFP Industries 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 UFP Industries are associated (or correlated) with Boise Cascade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boise Cascade has no effect on the direction of UFP Industries i.e., UFP Industries and Boise Cascade go up and down completely randomly.

Pair Corralation between UFP Industries and Boise Cascade

Assuming the 90 days horizon UFP Industries is expected to under-perform the Boise Cascade. But the stock apears to be less risky and, when comparing its historical volatility, UFP Industries is 1.16 times less risky than Boise Cascade. The stock trades about -0.41 of its potential returns per unit of risk. The Boise Cascade is currently generating about -0.35 of returns per unit of risk over similar time horizon. If you would invest  13,684  in Boise Cascade on September 24, 2024 and sell it today you would lose (1,929) from holding Boise Cascade or give up 14.1% of portfolio value over 90 days.

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

UFP Industries  vs.  Boise Cascade

UFP Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UFP Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, UFP Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Boise Cascade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Boise Cascade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Boise Cascade is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with UFP Industries and Boise Cascade

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

The idea behind UFP Industries and Boise Cascade 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.