Correlation Between Western Forest and Advantage Solutions
Can any of the company-specific risk be diversified away by investing in both Western Forest and Advantage Solutions 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 Western Forest and Advantage Solutions into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Forest Products and Advantage Solutions, you can compare the effects of market volatilities on Western Forest and Advantage Solutions 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 Western Forest with a short position of Advantage Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Forest and Advantage Solutions.
Diversification Opportunities for Western Forest and Advantage Solutions
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Western and Advantage is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Advantage Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantage Solutions and Western Forest 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 Western Forest Products are associated (or correlated) with Advantage Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantage Solutions has no effect on the direction of Western Forest i.e., Western Forest and Advantage Solutions go up and down completely randomly.
Pair Corralation between Western Forest and Advantage Solutions
Assuming the 90 days horizon Western Forest Products is expected to under-perform the Advantage Solutions. But the pink sheet apears to be less risky and, when comparing its historical volatility, Western Forest Products is 5.48 times less risky than Advantage Solutions. The pink sheet trades about -0.28 of its potential returns per unit of risk. The Advantage Solutions is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 2.50 in Advantage Solutions on September 4, 2024 and sell it today you would lose (0.50) from holding Advantage Solutions or give up 20.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Western Forest Products vs. Advantage Solutions
Performance |
| Timeline |
| Western Forest Products |
| Advantage Solutions |
Western Forest and Advantage Solutions Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Forest and Advantage Solutions
The main advantage of trading using opposite Western Forest and Advantage Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Forest position performs unexpectedly, Advantage Solutions 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 Advantage Solutions will offset losses from the drop in Advantage Solutions' long position.| Western Forest vs. Interfor | Western Forest vs. Svenska Cellulosa Aktiebolaget | Western Forest vs. Stella Jones | Western Forest vs. Simpson Manufacturing |
| Advantage Solutions vs. CannBioRx Life Sciences | Advantage Solutions vs. GCM Grosvenor | Advantage Solutions vs. CuriosityStream |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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