Correlation Between Western Forest and West Fraser

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

Diversification Opportunities for Western Forest and West Fraser

0.69

Correlation Coefficient

Western Forest  West Fraser

Poor diversification

The 3 months correlation between Western and West is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and West Fraser Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Fraser Timber 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 West Fraser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Fraser Timber has no effect on the direction of Western Forest i.e., Western Forest and West Fraser go up and down completely randomly.

Pair Corralation between Western Forest and West Fraser

Assuming the 90 days horizon Western Forest is expected to generate 4.08 times less return on investment than West Fraser. In addition to that, Western Forest is 1.83 times more volatile than West Fraser Timber. It trades about 0.01 of its total potential returns per unit of risk. West Fraser Timber is currently generating about 0.11 per unit of volatility. If you would invest  8,822  in West Fraser Timber on August 30, 2024 and sell it today you would earn a total of  995.00  from holding West Fraser Timber or generate 11.28% return on investment over 90 days.

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

Western Forest Products  vs.  West Fraser Timber

Western Forest Products

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Forest Products are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Western Forest is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

West Fraser Timber

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in West Fraser Timber are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, West Fraser may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Western Forest and West Fraser

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

The idea behind Western Forest Products and West Fraser 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.