Correlation Between West Fraser and Conifex Timber

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

Diversification Opportunities for West Fraser and Conifex Timber

0.38

Correlation Coefficient

West Fraser  Conifex Timber

Weak diversification

The 3 months correlation between West and Conifex is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Conifex Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Conifex Timber 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 Conifex Timber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Conifex Timber has no effect on the direction of West Fraser i.e., West Fraser and Conifex Timber go up and down completely randomly.

Pair Corralation between West Fraser and Conifex Timber

Considering the 90-day investment horizon West Fraser Timber is expected to generate 0.41 times more return on investment than Conifex Timber. However, West Fraser Timber is 2.44 times less risky than Conifex Timber. It trades about -0.11 of its potential returns per unit of risk. Conifex Timber is currently generating about -0.15 per unit of risk. If you would invest  8,611  in West Fraser Timber on December 27, 2024 and sell it today you would lose (901.00) from holding West Fraser Timber or give up 10.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

West Fraser Timber  vs.  Conifex Timber

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.

Conifex Timber

Risk-Adjusted Performance

Very Weak

Over the last 90 days Conifex Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with West Fraser and Conifex Timber

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

The idea behind West Fraser Timber and Conifex Timber 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.