Correlation Between West Fraser and Canfor
Can any of the company-specific risk be diversified away by investing in both West Fraser and Canfor 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 Canfor 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 Canfor, you can compare the effects of market volatilities on West Fraser and Canfor 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 Canfor. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Canfor.
Diversification Opportunities for West Fraser and Canfor
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between West and Canfor is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Canfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor 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 Canfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor has no effect on the direction of West Fraser i.e., West Fraser and Canfor go up and down completely randomly.
Pair Corralation between West Fraser and Canfor
Considering the 90-day investment horizon West Fraser Timber is expected to generate 0.72 times more return on investment than Canfor. However, West Fraser Timber is 1.38 times less risky than Canfor. It trades about 0.04 of its potential returns per unit of risk. Canfor is currently generating about -0.03 per unit of risk. If you would invest 8,302 in West Fraser Timber on August 28, 2024 and sell it today you would earn a total of 1,642 from holding West Fraser Timber or generate 19.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.72% |
| Values | Daily Returns |
West Fraser Timber vs. Canfor
Performance |
| Timeline |
| West Fraser Timber |
| Canfor |
West Fraser and Canfor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with West Fraser and Canfor
The main advantage of trading using opposite West Fraser and Canfor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Fraser position performs unexpectedly, Canfor 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 Canfor will offset losses from the drop in Canfor's long position.| West Fraser vs. Simpson Manufacturing | West Fraser vs. Interfor | West Fraser vs. Ufp Industries | West Fraser vs. Canfor |
| Canfor vs. Conifex Timber | Canfor vs. GreenFirst Forest Products | Canfor vs. West Fraser Timber | Canfor vs. Ufp Industries |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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