Correlation Between West Fraser and Alcoa Corp

Can any of the company-specific risk be diversified away by investing in both West Fraser and Alcoa Corp 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 West Fraser and Alcoa Corp 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 Alcoa Corp, you can compare the effects of market volatilities on West Fraser and Alcoa Corp 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 West Fraser with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Alcoa Corp.

Diversification Opportunities for West Fraser and Alcoa Corp

0.6

Correlation Coefficient

West Fraser  Alcoa Corp

Poor diversification

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

Pair Corralation between West Fraser and Alcoa Corp

Considering the 90-day investment horizon West Fraser Timber is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, West Fraser Timber is 1.84 times less risky than Alcoa Corp. The stock trades about -0.12 of its potential returns per unit of risk. The Alcoa Corp is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,823  in Alcoa Corp on December 26, 2024 and sell it today you would lose (489.00) from holding Alcoa Corp or give up 12.79% 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.  Alcoa Corp

West Fraser Timber

Risk-Adjusted Performance

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 latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with West Fraser and Alcoa Corp

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

The idea behind West Fraser Timber and Alcoa Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.