Correlation Between Western Forest and Taiga Building

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

By analyzing existing cross correlation between Western Forest Products and Taiga Building Products, you can compare the effects of market volatilities on Western Forest and Taiga Building 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 Western Forest with a short position of Taiga Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Forest and Taiga Building.

Diversification Opportunities for Western Forest and Taiga Building

0.01

Correlation Coefficient

Western Forest  Taiga Building

Significant diversification

The 3 months correlation between Western and Taiga is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Taiga Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiga Building Products and Western Forest 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 Western Forest Products are associated (or correlated) with Taiga Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiga Building Products has no effect on the direction of Western Forest i.e., Western Forest and Taiga Building go up and down completely randomly.

Pair Corralation between Western Forest and Taiga Building

Assuming the 90 days trading horizon Western Forest Products is expected to generate 2.51 times more return on investment than Taiga Building. However, Western Forest is 2.51 times more volatile than Taiga Building Products. It trades about 0.04 of its potential returns per unit of risk. Taiga Building Products is currently generating about -0.04 per unit of risk. If you would invest  41.00  in Western Forest Products on December 30, 2024 and sell it today you would earn a total of  2.00  from holding Western Forest Products or generate 4.88% return on investment over 90 days.

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

Western Forest Products  vs.  Taiga Building Products

Western Forest Products

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Forest Products are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Western Forest may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Taiga Building Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiga Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Taiga Building is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Western Forest and Taiga Building

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

The idea behind Western Forest Products and Taiga Building Products 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.