Correlation Between Algoma Steel and West Fraser
Can any of the company-specific risk be diversified away by investing in both Algoma Steel 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 Algoma Steel and West Fraser into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Algoma Steel Group and West Fraser Timber, you can compare the effects of market volatilities on Algoma Steel 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 Algoma Steel with a short position of West Fraser. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algoma Steel and West Fraser.
Diversification Opportunities for Algoma Steel and West Fraser
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Algoma and West is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group 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 Algoma Steel 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 Algoma Steel Group 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 Algoma Steel i.e., Algoma Steel and West Fraser go up and down completely randomly.
Pair Corralation between Algoma Steel and West Fraser
Given the investment horizon of 90 days Algoma Steel Group is expected to generate 1.42 times more return on investment than West Fraser. However, Algoma Steel is 1.42 times more volatile than West Fraser Timber. It trades about 0.06 of its potential returns per unit of risk. West Fraser Timber is currently generating about 0.04 per unit of risk. If you would invest 626.00 in Algoma Steel Group on August 25, 2024 and sell it today you would earn a total of 500.00 from holding Algoma Steel Group or generate 79.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Algoma Steel Group vs. West Fraser Timber
Performance |
| Timeline |
| Algoma Steel Group |
| West Fraser Timber |
Algoma Steel and West Fraser Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Algoma Steel and West Fraser
The main advantage of trading using opposite Algoma Steel and West Fraser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algoma Steel 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.| Algoma Steel vs. Labrador Gold Corp | Algoma Steel vs. Aurion Resources | Algoma Steel vs. Puma Exploration | Algoma Steel vs. Golden Star Resource |
| West Fraser vs. Interfor Corp | West Fraser vs. Canfor | West Fraser vs. Stella Jones | West Fraser vs. Western Forest Products |
Check out your portfolio center.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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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