Correlation Between SOUTHERN and Summit Materials

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

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

Diversification Opportunities for SOUTHERN and Summit Materials

-0.62

Correlation Coefficient

SOUTHERN  Summit Materials

Excellent diversification

The 3 months correlation between SOUTHERN and Summit is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHERN PER CORP and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and SOUTHERN 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 SOUTHERN PER CORP 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 SOUTHERN i.e., SOUTHERN and Summit Materials go up and down completely randomly.

Pair Corralation between SOUTHERN and Summit Materials

Assuming the 90 days trading horizon SOUTHERN is expected to generate 2.1 times less return on investment than Summit Materials. But when comparing it to its historical volatility, SOUTHERN PER CORP is 2.93 times less risky than Summit Materials. It trades about 0.19 of its potential returns per unit of risk. Summit Materials is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,852  in Summit Materials on September 19, 2024 and sell it today you would earn a total of  185.00  from holding Summit Materials or generate 3.81% return on investment over 90 days.

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

SOUTHERN PER CORP  vs.  Summit Materials

SOUTHERN PER P

Risk-Adjusted Performance

0 of 100

Very Weak

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

Summit Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SOUTHERN and Summit Materials

The main advantage of trading using opposite SOUTHERN and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHERN 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 SOUTHERN PER CORP 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.