Correlation Between Western Investment and Postmedia Network

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

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

Diversification Opportunities for Western Investment and Postmedia Network

0.04

Correlation Coefficient

Western Investment  Postmedia Network

Significant diversification

The 3 months correlation between Western and Postmedia is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and Postmedia Network Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Postmedia Network Canada and Western Investment 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 Investment are associated (or correlated) with Postmedia Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Postmedia Network Canada has no effect on the direction of Western Investment i.e., Western Investment and Postmedia Network go up and down completely randomly.

Pair Corralation between Western Investment and Postmedia Network

Given the investment horizon of 90 days Western Investment is expected to generate 1.76 times more return on investment than Postmedia Network. However, Western Investment is 1.76 times more volatile than Postmedia Network Canada. It trades about 0.07 of its potential returns per unit of risk. Postmedia Network Canada is currently generating about -0.01 per unit of risk. If you would invest  42.00  in Western Investment on September 17, 2024 and sell it today you would earn a total of  7.00  from holding Western Investment or generate 16.67% return on investment over 90 days.

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

Western Investment  vs.  Postmedia Network Canada

Western Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Postmedia Network Canada

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Postmedia Network Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Postmedia Network is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Western Investment and Postmedia Network

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

The idea behind Western Investment and Postmedia Network Canada 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.