Correlation Between West Fraser and Stella Jones

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

Diversification Opportunities for West Fraser and Stella Jones

0.61

Correlation Coefficient

West Fraser  Stella Jones

Poor diversification

The 3 months correlation between West and Stella is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Stella Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stella Jones 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 Stella Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stella Jones has no effect on the direction of West Fraser i.e., West Fraser and Stella Jones go up and down completely randomly.

Pair Corralation between West Fraser and Stella Jones

Considering the 90-day investment horizon West Fraser Timber is expected to under-perform the Stella Jones. But the stock apears to be less risky and, when comparing its historical volatility, West Fraser Timber is 1.52 times less risky than Stella Jones. The stock trades about -0.11 of its potential returns per unit of risk. The Stella Jones is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,917  in Stella Jones on December 28, 2024 and sell it today you would lose (125.00) from holding Stella Jones or give up 2.54% 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.  Stella Jones

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.

Stella Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stella Jones has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Stella Jones is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with West Fraser and Stella Jones

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

The idea behind West Fraser Timber and Stella Jones 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.