Correlation Between Western Forest and Richelieu Hardware
Can any of the company-specific risk be diversified away by investing in both Western Forest and Richelieu Hardware 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 Richelieu Hardware 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 Richelieu Hardware, you can compare the effects of market volatilities on Western Forest and Richelieu Hardware 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 Richelieu Hardware. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Forest and Richelieu Hardware.
Diversification Opportunities for Western Forest and Richelieu Hardware
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Western and Richelieu is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Richelieu Hardware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richelieu Hardware 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 Richelieu Hardware. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richelieu Hardware has no effect on the direction of Western Forest i.e., Western Forest and Richelieu Hardware go up and down completely randomly.
Pair Corralation between Western Forest and Richelieu Hardware
Assuming the 90 days trading horizon Western Forest Products is expected to generate 3.61 times more return on investment than Richelieu Hardware. However, Western Forest is 3.61 times more volatile than Richelieu Hardware. It trades about 0.14 of its potential returns per unit of risk. Richelieu Hardware is currently generating about -0.5 per unit of risk. If you would invest 38.00 in Western Forest Products on December 6, 2024 and sell it today you would earn a total of 4.00 from holding Western Forest Products or generate 10.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Forest Products vs. Richelieu Hardware
Performance |
| Timeline |
| Western Forest Products |
| Richelieu Hardware |
Western Forest and Richelieu Hardware Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Forest and Richelieu Hardware
The main advantage of trading using opposite Western Forest and Richelieu Hardware positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Forest position performs unexpectedly, Richelieu Hardware 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 Richelieu Hardware will offset losses from the drop in Richelieu Hardware's long position.| Western Forest vs. Interfor Corp | Western Forest vs. Canfor | Western Forest vs. West Fraser Timber | Western Forest vs. Stella Jones |
| Richelieu Hardware vs. Stella Jones | Richelieu Hardware vs. Winpak | Richelieu Hardware vs. Stantec | Richelieu Hardware vs. Gildan Activewear |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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