Correlation Between West Fraser and Champion Iron
Can any of the company-specific risk be diversified away by investing in both West Fraser and Champion Iron 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 West Fraser and Champion Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between West Fraser Timber and Champion Iron, you can compare the effects of market volatilities on West Fraser and Champion Iron 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 West Fraser with a short position of Champion Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Champion Iron.
Diversification Opportunities for West Fraser and Champion Iron
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between West and Champion is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Champion Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron and West Fraser 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 West Fraser Timber are associated (or correlated) with Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron has no effect on the direction of West Fraser i.e., West Fraser and Champion Iron go up and down completely randomly.
Pair Corralation between West Fraser and Champion Iron
Assuming the 90 days trading horizon West Fraser Timber is expected to generate 0.7 times more return on investment than Champion Iron. However, West Fraser Timber is 1.42 times less risky than Champion Iron. It trades about 0.04 of its potential returns per unit of risk. Champion Iron is currently generating about 0.0 per unit of risk. If you would invest 10,070 in West Fraser Timber on August 25, 2024 and sell it today you would earn a total of 3,121 from holding West Fraser Timber or generate 30.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
West Fraser Timber vs. Champion Iron
Performance |
| Timeline |
| West Fraser Timber |
| Champion Iron |
West Fraser and Champion Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with West Fraser and Champion Iron
The main advantage of trading using opposite West Fraser and Champion Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Fraser position performs unexpectedly, Champion Iron 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 Champion Iron will offset losses from the drop in Champion Iron's long position.| West Fraser vs. Interfor Corp | West Fraser vs. Canfor | West Fraser vs. Stella Jones | West Fraser vs. Western Forest Products |
| Champion Iron vs. Black Iron | Champion Iron vs. Wesdome Gold Mines | Champion Iron vs. GoGold Resources | Champion Iron vs. Mason Graphite |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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