Correlation Between Western Forest and Canfor
Can any of the company-specific risk be diversified away by investing in both Western Forest 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 Western Forest and Canfor 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 Canfor, you can compare the effects of market volatilities on Western Forest 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 Western Forest with a short position of Canfor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Forest and Canfor.
Diversification Opportunities for Western Forest and Canfor
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Canfor is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Canfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor 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 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 Western Forest i.e., Western Forest and Canfor go up and down completely randomly.
Pair Corralation between Western Forest and Canfor
Assuming the 90 days horizon Western Forest Products is expected to under-perform the Canfor. But the pink sheet apears to be less risky and, when comparing its historical volatility, Western Forest Products is 1.03 times less risky than Canfor. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Canfor is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,720 in Canfor on August 28, 2024 and sell it today you would lose (496.00) from holding Canfor or give up 28.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 94.55% |
| Values | Daily Returns |
Western Forest Products vs. Canfor
Performance |
| Timeline |
| Western Forest Products |
| Canfor |
Western Forest and Canfor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Forest and Canfor
The main advantage of trading using opposite Western Forest and Canfor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Forest 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.| Western Forest vs. Interfor | Western Forest vs. Svenska Cellulosa Aktiebolaget | Western Forest vs. Stella Jones | Western Forest vs. Simpson Manufacturing |
| 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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