Correlation Between Wells Fargo and Boise Cascade

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

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

Diversification Opportunities for Wells Fargo and Boise Cascade

0.63

Correlation Coefficient

Wells Fargo  Boise Cascade

Poor diversification

The 3 months correlation between Wells and Boise is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Boise Cascade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boise Cascade and Wells Fargo 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 West Fraser Timber 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 Wells Fargo i.e., Wells Fargo and Boise Cascade go up and down completely randomly.

Pair Corralation between Wells Fargo and Boise Cascade

Assuming the 90 days horizon West Fraser Timber is expected to generate 0.86 times more return on investment than Boise Cascade. However, West Fraser Timber is 1.16 times less risky than Boise Cascade. It trades about -0.26 of its potential returns per unit of risk. Boise Cascade is currently generating about -0.35 per unit of risk. If you would invest  8,960  in West Fraser Timber on September 24, 2024 and sell it today you would lose (840.00) from holding West Fraser Timber or give up 9.37% of portfolio value over 90 days.

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

West Fraser Timber  vs.  Boise Cascade

West Fraser Timber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Wells Fargo 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 Wells Fargo and Boise Cascade

The main advantage of trading using opposite Wells Fargo and Boise Cascade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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 West Fraser Timber 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .