Correlation Between Conifex Timber and Western Forest

Can any of the company-specific risk be diversified away by investing in both Conifex Timber and Western Forest 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 Conifex Timber and Western Forest into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Conifex Timber and Western Forest Products, you can compare the effects of market volatilities on Conifex Timber and Western Forest 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 Conifex Timber with a short position of Western Forest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Conifex Timber and Western Forest.

Diversification Opportunities for Conifex Timber and Western Forest

0.62

Correlation Coefficient

Conifex Timber  Western Forest

Poor diversification

The 3 months correlation between Conifex and Western is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Conifex Timber and Western Forest Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Forest Products and Conifex Timber 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 Conifex Timber are associated (or correlated) with Western Forest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Forest Products has no effect on the direction of Conifex Timber i.e., Conifex Timber and Western Forest go up and down completely randomly.

Pair Corralation between Conifex Timber and Western Forest

Assuming the 90 days trading horizon Conifex Timber is expected to under-perform the Western Forest. In addition to that, Conifex Timber is 1.26 times more volatile than Western Forest Products. It trades about -0.13 of its total potential returns per unit of risk. Western Forest Products is currently generating about -0.11 per unit of volatility. If you would invest  50.00  in Western Forest Products on September 4, 2024 and sell it today you would lose (6.00) from holding Western Forest Products or give up 12.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Conifex Timber  vs.  Western Forest Products

Conifex Timber

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Conifex Timber are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Conifex Timber is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Western Forest Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Forest Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Western Forest is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Conifex Timber and Western Forest

The main advantage of trading using opposite Conifex Timber and Western Forest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Conifex Timber position performs unexpectedly, Western Forest 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 Western Forest will offset losses from the drop in Western Forest's long position.

The idea behind Conifex Timber and Western Forest Products pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.