Correlation Between Weyerhaeuser and Equity Commonwealth

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

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

Diversification Opportunities for Weyerhaeuser and Equity Commonwealth

0.59

Correlation Coefficient

Weyerhaeuser  Equity Commonwealth

Very weak diversification

The 3 months correlation between Weyerhaeuser and Equity is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Weyerhaeuser and Equity Commonwealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Commonwealth and Weyerhaeuser 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 Weyerhaeuser are associated (or correlated) with Equity Commonwealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Commonwealth has no effect on the direction of Weyerhaeuser i.e., Weyerhaeuser and Equity Commonwealth go up and down completely randomly.

Pair Corralation between Weyerhaeuser and Equity Commonwealth

Allowing for the 90-day total investment horizon Weyerhaeuser is expected to generate 0.13 times more return on investment than Equity Commonwealth. However, Weyerhaeuser is 7.93 times less risky than Equity Commonwealth. It trades about -0.07 of its potential returns per unit of risk. Equity Commonwealth is currently generating about -0.11 per unit of risk. If you would invest  3,226  in Weyerhaeuser on November 28, 2024 and sell it today you would lose (206.00) from holding Weyerhaeuser or give up 6.39% of portfolio value over 90 days.

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

Weyerhaeuser  vs.  Equity Commonwealth

Weyerhaeuser

Risk-Adjusted Performance

Very Weak

Over the last 90 days Weyerhaeuser has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Equity Commonwealth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Commonwealth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Weyerhaeuser and Equity Commonwealth

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

The idea behind Weyerhaeuser and Equity Commonwealth 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..