Correlation Between Louisiana Pacific and Quanex Building

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Can any of the company-specific risk be diversified away by investing in both Louisiana Pacific and Quanex Building 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 Louisiana Pacific and Quanex Building into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Louisiana Pacific and Quanex Building Products, you can compare the effects of market volatilities on Louisiana Pacific and Quanex Building 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 Louisiana Pacific with a short position of Quanex Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Louisiana Pacific and Quanex Building.

Diversification Opportunities for Louisiana Pacific and Quanex Building

LouisianaQuanexDiversified AwayLouisianaQuanexDiversified Away100%
0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Louisiana and Quanex is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Louisiana Pacific and Quanex Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quanex Building Products and Louisiana Pacific 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 Louisiana Pacific are associated (or correlated) with Quanex Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quanex Building Products has no effect on the direction of Louisiana Pacific i.e., Louisiana Pacific and Quanex Building go up and down completely randomly.

Pair Corralation between Louisiana Pacific and Quanex Building

Considering the 90-day investment horizon Louisiana Pacific is expected to under-perform the Quanex Building. But the stock apears to be less risky and, when comparing its historical volatility, Louisiana Pacific is 1.16 times less risky than Quanex Building. The stock trades about -0.23 of its potential returns per unit of risk. The Quanex Building Products is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  2,255  in Quanex Building Products on November 29, 2024 and sell it today you would lose (244.00) from holding Quanex Building Products or give up 10.82% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Louisiana Pacific  vs.  Quanex Building Products

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -30-20-100
JavaScript chart by amCharts 3.21.15LPX NX
       Timeline  
Louisiana Pacific 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Louisiana Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb100105110115120
Quanex Building Products 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Quanex Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb202224262830

Louisiana Pacific and Quanex Building Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.68-2.75-1.83-0.910.00.871.732.63.47 0.040.050.060.070.08
JavaScript chart by amCharts 3.21.15LPX NX
       Returns  

Pair Trading with Louisiana Pacific and Quanex Building

The main advantage of trading using opposite Louisiana Pacific and Quanex Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Louisiana Pacific position performs unexpectedly, Quanex Building 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 Quanex Building will offset losses from the drop in Quanex Building's long position.
The idea behind Louisiana Pacific and Quanex Building Products 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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