Correlation Between Western Forest and Stella Jones

Can any of the company-specific risk be diversified away by investing in both Western Forest 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 Western Forest and Stella Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Forest Products and Stella Jones, you can compare the effects of market volatilities on Western Forest 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 Western Forest with a short position of Stella Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Forest and Stella Jones.

Diversification Opportunities for Western Forest and Stella Jones

-0.27

Correlation Coefficient

Western Forest  Stella Jones

Very good diversification

The 3 months correlation between Western and Stella is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Stella Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stella Jones and Western Forest 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 Western Forest Products 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 Western Forest i.e., Western Forest and Stella Jones go up and down completely randomly.

Pair Corralation between Western Forest and Stella Jones

Assuming the 90 days horizon Western Forest Products is expected to generate 1.66 times more return on investment than Stella Jones. However, Western Forest is 1.66 times more volatile than Stella Jones. It trades about 0.05 of its potential returns per unit of risk. Stella Jones is currently generating about -0.01 per unit of risk. If you would invest  28.00  in Western Forest Products on December 30, 2024 and sell it today you would earn a total of  2.00  from holding Western Forest Products or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

Western Forest Products  vs.  Stella Jones

Western Forest Products

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Forest Products are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Western Forest may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Western Forest and Stella Jones

The main advantage of trading using opposite Western Forest and Stella Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Forest 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 Western Forest Products 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.