Correlation Between NATIONAL and Summit Materials

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

By analyzing existing cross correlation between NATIONAL RURAL UTILS and Summit Materials, you can compare the effects of market volatilities on NATIONAL and Summit Materials 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 NATIONAL with a short position of Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of NATIONAL and Summit Materials.

Diversification Opportunities for NATIONAL and Summit Materials

-0.66

Correlation Coefficient

NATIONAL  Summit Materials

Excellent diversification

The 3 months correlation between NATIONAL and Summit is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding NATIONAL RURAL UTILS and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and NATIONAL 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 NATIONAL RURAL UTILS are associated (or correlated) with Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of NATIONAL i.e., NATIONAL and Summit Materials go up and down completely randomly.

Pair Corralation between NATIONAL and Summit Materials

Assuming the 90 days trading horizon NATIONAL RURAL UTILS is expected to under-perform the Summit Materials. But the bond apears to be less risky and, when comparing its historical volatility, NATIONAL RURAL UTILS is 6.58 times less risky than Summit Materials. The bond trades about -0.22 of its potential returns per unit of risk. The Summit Materials is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,683  in Summit Materials on September 4, 2024 and sell it today you would earn a total of  1,409  from holding Summit Materials or generate 38.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	67.19%
Values	Daily Returns

NATIONAL RURAL UTILS  vs.  Summit Materials

NATIONAL RURAL UTILS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NATIONAL RURAL UTILS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NATIONAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Summit Materials

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NATIONAL and Summit Materials

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

The idea behind NATIONAL RURAL UTILS and Summit Materials 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.