Correlation Between Louisiana Pacific and Quanex Building
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
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 Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Louisiana Pacific vs. Quanex Building Products
Performance |
Timeline |
Louisiana Pacific |
Quanex Building Products |
Louisiana Pacific and Quanex Building Volatility Contrast
Predicted Return Density |
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.Louisiana Pacific vs. Lennox International | ||
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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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