Correlation Between Summit Materials and Titan Machinery

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

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

Diversification Opportunities for Summit Materials and Titan Machinery

0.69

Correlation Coefficient

Summit Materials  Titan Machinery

Poor diversification

The 3 months correlation between Summit and Titan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery and Summit Materials 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 Summit Materials are associated (or correlated) with Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of Summit Materials i.e., Summit Materials and Titan Machinery go up and down completely randomly.

Pair Corralation between Summit Materials and Titan Machinery

Considering the 90-day investment horizon Summit Materials is expected to generate 0.68 times more return on investment than Titan Machinery. However, Summit Materials is 1.48 times less risky than Titan Machinery. It trades about 0.21 of its potential returns per unit of risk. Titan Machinery is currently generating about 0.06 per unit of risk. If you would invest  3,915  in Summit Materials on September 18, 2024 and sell it today you would earn a total of  1,160  from holding Summit Materials or generate 29.63% return on investment over 90 days.

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

Summit Materials  vs.  Titan Machinery

Summit Materials

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Titan Machinery

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Titan Machinery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Summit Materials and Titan Machinery

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

The idea behind Summit Materials and Titan Machinery 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 Managers module to screen money managers from public funds and ETFs managed around the world.