Correlation Between West Fraser and United States

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

Diversification Opportunities for West Fraser and United States

-0.31

Correlation Coefficient

West Fraser  United States

Very good diversification

The 3 months correlation between West and United is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of West Fraser i.e., West Fraser and United States go up and down completely randomly.

Pair Corralation between West Fraser and United States

Considering the 90-day investment horizon West Fraser Timber is expected to under-perform the United States. But the stock apears to be less risky and, when comparing its historical volatility, West Fraser Timber is 1.97 times less risky than United States. The stock trades about -0.12 of its potential returns per unit of risk. The United States Steel is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,096  in United States Steel on December 26, 2024 and sell it today you would earn a total of  1,200  from holding United States Steel or generate 38.76% return on investment over 90 days.

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

West Fraser Timber  vs.  United States Steel

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.

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with West Fraser and United States

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

The idea behind West Fraser Timber and United States Steel 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.