Correlation Between Goodfellow and Western Forest

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

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

Diversification Opportunities for Goodfellow and Western Forest

0.7

Correlation Coefficient

Goodfellow  Western Forest

Poor diversification

The 3 months correlation between Goodfellow and Western is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Goodfellow 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 Goodfellow 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 Goodfellow 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 Goodfellow i.e., Goodfellow and Western Forest go up and down completely randomly.

Pair Corralation between Goodfellow and Western Forest

Assuming the 90 days trading horizon Goodfellow is expected to generate 0.44 times more return on investment than Western Forest. However, Goodfellow is 2.26 times less risky than Western Forest. It trades about -0.05 of its potential returns per unit of risk. Western Forest Products is currently generating about -0.17 per unit of risk. If you would invest  1,359  in Goodfellow on September 27, 2024 and sell it today you would lose (48.00) from holding Goodfellow or give up 3.53% of portfolio value over 90 days.

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

Goodfellow  vs.  Western Forest Products

Goodfellow

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goodfellow has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm 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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Goodfellow and Western Forest

The main advantage of trading using opposite Goodfellow and Western Forest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodfellow 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 Goodfellow 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.