Correlation Between West Fraser and Simpson Manufacturing
Can any of the company-specific risk be diversified away by investing in both West Fraser and Simpson Manufacturing 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 Simpson Manufacturing 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 Simpson Manufacturing, you can compare the effects of market volatilities on West Fraser and Simpson Manufacturing 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 Simpson Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Simpson Manufacturing.
Diversification Opportunities for West Fraser and Simpson Manufacturing
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between West and Simpson is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing 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 Simpson Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simpson Manufacturing has no effect on the direction of West Fraser i.e., West Fraser and Simpson Manufacturing go up and down completely randomly.
Pair Corralation between West Fraser and Simpson Manufacturing
Considering the 90-day investment horizon West Fraser is expected to generate 2.14 times less return on investment than Simpson Manufacturing. In addition to that, West Fraser is 1.16 times more volatile than Simpson Manufacturing. It trades about 0.04 of its total potential returns per unit of risk. Simpson Manufacturing is currently generating about 0.09 per unit of volatility. If you would invest 17,648 in Simpson Manufacturing on August 24, 2024 and sell it today you would earn a total of 478.00 from holding Simpson Manufacturing or generate 2.71% 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. Simpson Manufacturing
Performance |
| Timeline |
| West Fraser Timber |
| Simpson Manufacturing |
West Fraser and Simpson Manufacturing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with West Fraser and Simpson Manufacturing
The main advantage of trading using opposite West Fraser and Simpson Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Fraser position performs unexpectedly, Simpson Manufacturing 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 Simpson Manufacturing will offset losses from the drop in Simpson Manufacturing's long position.| West Fraser vs. Simpson Manufacturing | West Fraser vs. Interfor | West Fraser vs. Ufp Industries | West Fraser vs. Canfor |
| Simpson Manufacturing vs. West Fraser Timber | Simpson Manufacturing vs. Interfor | Simpson Manufacturing vs. Ufp Industries | Simpson Manufacturing vs. Canfor |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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