Correlation Between Canfor Pulp and Holmen AB

Can any of the company-specific risk be diversified away by investing in both Canfor Pulp and Holmen AB 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 Canfor Pulp and Holmen AB into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Canfor Pulp Products and Holmen AB ADR, you can compare the effects of market volatilities on Canfor Pulp and Holmen AB 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 Canfor Pulp with a short position of Holmen AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canfor Pulp and Holmen AB.

Diversification Opportunities for Canfor Pulp and Holmen AB

0.32

Correlation Coefficient

Canfor Pulp  Holmen AB

Weak diversification

The 3 months correlation between Canfor and Holmen is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Canfor Pulp Products and Holmen AB ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holmen AB ADR and Canfor Pulp 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 Canfor Pulp Products are associated (or correlated) with Holmen AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holmen AB ADR has no effect on the direction of Canfor Pulp i.e., Canfor Pulp and Holmen AB go up and down completely randomly.

Pair Corralation between Canfor Pulp and Holmen AB

Assuming the 90 days horizon Canfor Pulp Products is expected to generate 15.52 times more return on investment than Holmen AB. However, Canfor Pulp is 15.52 times more volatile than Holmen AB ADR. It trades about 0.04 of its potential returns per unit of risk. Holmen AB ADR is currently generating about 0.13 per unit of risk. If you would invest  58.00  in Canfor Pulp Products on September 3, 2024 and sell it today you would earn a total of  3.00  from holding Canfor Pulp Products or generate 5.17% return on investment over 90 days.

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

Canfor Pulp Products  vs.  Holmen AB ADR

Canfor Pulp Products

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canfor Pulp Products are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Canfor Pulp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Holmen AB ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Holmen AB ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Holmen AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Canfor Pulp and Holmen AB

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

The idea behind Canfor Pulp Products and Holmen AB ADR 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.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.