Correlation Between West Fraser and Enviva Partners

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

Diversification Opportunities for West Fraser and Enviva Partners

-0.2

Correlation Coefficient

West Fraser  Enviva Partners

Good diversification

The 3 months correlation between West and Enviva is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Enviva Partners LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enviva Partners LP 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 Enviva Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enviva Partners LP has no effect on the direction of West Fraser i.e., West Fraser and Enviva Partners go up and down completely randomly.

Pair Corralation between West Fraser and Enviva Partners

Considering the 90-day investment horizon West Fraser is expected to generate 5.88 times less return on investment than Enviva Partners. But when comparing it to its historical volatility, West Fraser Timber is 2.15 times less risky than Enviva Partners. It trades about 0.04 of its potential returns per unit of risk. Enviva Partners LP is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  40.00  in Enviva Partners LP on September 13, 2024 and sell it today you would earn a total of  2.00  from holding Enviva Partners LP or generate 5.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	25.4%
Values	Daily Returns

West Fraser Timber  vs.  Enviva Partners LP

West Fraser Timber

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Fraser Timber are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, West Fraser is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Enviva Partners LP

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Enviva Partners LP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat inconsistent basic indicators, Enviva Partners sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with West Fraser and Enviva Partners

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

The idea behind West Fraser Timber and Enviva Partners LP 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.