Correlation Between West Fraser and Dow Jones
Can any of the company-specific risk be diversified away by investing in both West Fraser and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on West Fraser and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Dow Jones.
Diversification Opportunities for West Fraser and Dow Jones
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between West and Dow is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of West Fraser i.e., West Fraser and Dow Jones go up and down completely randomly.
Pair Corralation between West Fraser and Dow Jones
Considering the 90-day investment horizon West Fraser is expected to generate 2.02 times less return on investment than Dow Jones. In addition to that, West Fraser is 2.05 times more volatile than Dow Jones Industrial. It trades about 0.06 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.26 per unit of volatility. If you would invest 4,238,757 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 234,900 from holding Dow Jones Industrial or generate 5.54% 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. Dow Jones Industrial
Performance |
| Timeline |
West Fraser and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
West Fraser Timber
Pair trading matchups for West Fraser
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with West Fraser and Dow Jones
The main advantage of trading using opposite West Fraser and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Fraser position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| West Fraser vs. Simpson Manufacturing | West Fraser vs. Interfor | West Fraser vs. Ufp Industries | West Fraser vs. Canfor |
| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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