Correlation Between West Fraser and Nature Wood
Can any of the company-specific risk be diversified away by investing in both West Fraser and Nature Wood 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 Nature Wood 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 Nature Wood Group, you can compare the effects of market volatilities on West Fraser and Nature Wood 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 Nature Wood. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Nature Wood.
Diversification Opportunities for West Fraser and Nature Wood
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between West and Nature is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Nature Wood Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nature Wood Group 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 Nature Wood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nature Wood Group has no effect on the direction of West Fraser i.e., West Fraser and Nature Wood go up and down completely randomly.
Pair Corralation between West Fraser and Nature Wood
Considering the 90-day investment horizon West Fraser Timber is expected to generate 0.55 times more return on investment than Nature Wood. However, West Fraser Timber is 1.83 times less risky than Nature Wood. It trades about 0.04 of its potential returns per unit of risk. Nature Wood Group is currently generating about 0.02 per unit of risk. If you would invest 9,717 in West Fraser Timber on August 28, 2024 and sell it today you would earn a total of 130.00 from holding West Fraser Timber or generate 1.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
West Fraser Timber vs. Nature Wood Group
Performance |
| Timeline |
| West Fraser Timber |
| Nature Wood Group |
West Fraser and Nature Wood Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with West Fraser and Nature Wood
The main advantage of trading using opposite West Fraser and Nature Wood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Fraser position performs unexpectedly, Nature Wood 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 Nature Wood will offset losses from the drop in Nature Wood's long position.| West Fraser vs. Simpson Manufacturing | West Fraser vs. Interfor | West Fraser vs. Ufp Industries | West Fraser vs. Canfor |
| Nature Wood vs. Summit Materials | Nature Wood vs. KNOT Offshore Partners | Nature Wood vs. Contagious Gaming | Nature Wood vs. Yuexiu Transport Infrastructure |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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