Correlation Between West Fraser and Russel Metals
Can any of the company-specific risk be diversified away by investing in both West Fraser and Russel Metals 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 Russel Metals 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 Russel Metals, you can compare the effects of market volatilities on West Fraser and Russel Metals 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 Russel Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Russel Metals.
Diversification Opportunities for West Fraser and Russel Metals
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between West and Russel is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Russel Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russel Metals 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 Russel Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russel Metals has no effect on the direction of West Fraser i.e., West Fraser and Russel Metals go up and down completely randomly.
Pair Corralation between West Fraser and Russel Metals
Assuming the 90 days trading horizon West Fraser Timber is expected to generate 1.14 times more return on investment than Russel Metals. However, West Fraser is 1.14 times more volatile than Russel Metals. It trades about 0.06 of its potential returns per unit of risk. Russel Metals is currently generating about 0.06 per unit of risk. If you would invest 9,937 in West Fraser Timber on August 31, 2024 and sell it today you would earn a total of 3,815 from holding West Fraser Timber or generate 38.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
West Fraser Timber vs. Russel Metals
Performance |
| Timeline |
| West Fraser Timber |
| Russel Metals |
West Fraser and Russel Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with West Fraser and Russel Metals
The main advantage of trading using opposite West Fraser and Russel Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Fraser position performs unexpectedly, Russel Metals 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 Russel Metals will offset losses from the drop in Russel Metals' long position.| West Fraser vs. Solar Alliance Energy | West Fraser vs. Global X Active | West Fraser vs. Financial 15 Split | West Fraser vs. Rubicon Organics |
| Russel Metals vs. Finning International | Russel Metals vs. Transcontinental | Russel Metals vs. Toromont Industries | Russel Metals vs. IGM Financial |
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 Stocks Directory module to find actively traded stocks across global markets.
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