Correlation Between Western Forest and Algoma Central
Can any of the company-specific risk be diversified away by investing in both Western Forest and Algoma Central 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 Forest and Algoma Central into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Forest Products and Algoma Central, you can compare the effects of market volatilities on Western Forest and Algoma Central 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 Forest with a short position of Algoma Central. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Forest and Algoma Central.
Diversification Opportunities for Western Forest and Algoma Central
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Western and Algoma is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Algoma Central in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Central and Western Forest 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 Forest Products are associated (or correlated) with Algoma Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Central has no effect on the direction of Western Forest i.e., Western Forest and Algoma Central go up and down completely randomly.
Pair Corralation between Western Forest and Algoma Central
Assuming the 90 days trading horizon Western Forest Products is expected to generate 2.54 times more return on investment than Algoma Central. However, Western Forest is 2.54 times more volatile than Algoma Central. It trades about 0.06 of its potential returns per unit of risk. Algoma Central is currently generating about -0.16 per unit of risk. If you would invest 42.00 in Western Forest Products on October 13, 2024 and sell it today you would earn a total of 1.00 from holding Western Forest Products or generate 2.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Forest Products vs. Algoma Central
Performance |
| Timeline |
| Western Forest Products |
| Algoma Central |
Western Forest and Algoma Central Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Forest and Algoma Central
The main advantage of trading using opposite Western Forest and Algoma Central positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Forest position performs unexpectedly, Algoma Central 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 Algoma Central will offset losses from the drop in Algoma Central's long position.| Western Forest vs. Interfor Corp | Western Forest vs. Canfor | Western Forest vs. West Fraser Timber | Western Forest vs. Stella Jones |
| Algoma Central vs. Goodfellow | Algoma Central vs. Leons Furniture Limited | Algoma Central vs. High Liner Foods | Algoma Central vs. Exco Technologies Limited |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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