Correlation Between Western Forest and Interfor
Can any of the company-specific risk be diversified away by investing in both Western Forest and Interfor 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 Interfor 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 Interfor, you can compare the effects of market volatilities on Western Forest and Interfor 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 Interfor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Forest and Interfor.
Diversification Opportunities for Western Forest and Interfor
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Interfor is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Interfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interfor 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 Interfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interfor has no effect on the direction of Western Forest i.e., Western Forest and Interfor go up and down completely randomly.
Pair Corralation between Western Forest and Interfor
Assuming the 90 days horizon Western Forest Products is expected to under-perform the Interfor. In addition to that, Western Forest is 1.28 times more volatile than Interfor. It trades about -0.05 of its total potential returns per unit of risk. Interfor is currently generating about -0.03 per unit of volatility. If you would invest 1,162 in Interfor on November 9, 2024 and sell it today you would lose (19.00) from holding Interfor or give up 1.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Western Forest Products vs. Interfor
Performance |
| Timeline |
| Western Forest Products |
| Interfor |
Western Forest and Interfor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Forest and Interfor
The main advantage of trading using opposite Western Forest and Interfor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Forest position performs unexpectedly, Interfor 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 Interfor will offset losses from the drop in Interfor's long position.| Western Forest vs. Interfor | Western Forest vs. Svenska Cellulosa Aktiebolaget | Western Forest vs. Stella Jones | Western Forest vs. Simpson Manufacturing |
| Interfor vs. Svenska Cellulosa Aktiebolaget | Interfor vs. Western Forest Products | Interfor vs. Stella Jones | Interfor vs. Simpson Manufacturing |
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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