Correlation Between Ufp Industries and Simpson Manufacturing

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

By analyzing existing cross correlation between Ufp Industries and Simpson Manufacturing, you can compare the effects of market volatilities on Ufp Industries and Simpson Manufacturing 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 Simpson Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ufp Industries and Simpson Manufacturing.

Diversification Opportunities for Ufp Industries and Simpson Manufacturing

0.6

Correlation Coefficient

Ufp Industries  Simpson Manufacturing

Poor diversification

The 3 months correlation between Ufp and Simpson is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ufp Industries and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing 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 Simpson Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simpson Manufacturing has no effect on the direction of Ufp Industries i.e., Ufp Industries and Simpson Manufacturing go up and down completely randomly.

Pair Corralation between Ufp Industries and Simpson Manufacturing

Given the investment horizon of 90 days Ufp Industries is expected to generate 0.95 times more return on investment than Simpson Manufacturing. However, Ufp Industries is 1.05 times less risky than Simpson Manufacturing. It trades about -0.01 of its potential returns per unit of risk. Simpson Manufacturing is currently generating about -0.03 per unit of risk. If you would invest  11,182  in Ufp Industries on December 28, 2024 and sell it today you would lose (173.00) from holding Ufp Industries or give up 1.55% of portfolio value over 90 days.

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

Ufp Industries  vs.  Simpson Manufacturing

Ufp Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ufp Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Ufp Industries is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Simpson Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simpson Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Simpson Manufacturing is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ufp Industries and Simpson Manufacturing

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

The idea behind Ufp Industries and Simpson Manufacturing 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.