Correlation Between Timbercreek Financial and Wajax

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

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

Diversification Opportunities for Timbercreek Financial and Wajax

0.68

Correlation Coefficient

Timbercreek Financial  Wajax

Poor diversification

The 3 months correlation between Timbercreek and Wajax is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Timbercreek Financial Corp and Wajax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wajax and Timbercreek Financial 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 Timbercreek Financial Corp are associated (or correlated) with Wajax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wajax has no effect on the direction of Timbercreek Financial i.e., Timbercreek Financial and Wajax go up and down completely randomly.

Pair Corralation between Timbercreek Financial and Wajax

Assuming the 90 days horizon Timbercreek Financial Corp is expected to under-perform the Wajax. But the stock apears to be less risky and, when comparing its historical volatility, Timbercreek Financial Corp is 2.95 times less risky than Wajax. The stock trades about -0.39 of its potential returns per unit of risk. The Wajax is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,120  in Wajax on September 15, 2024 and sell it today you would earn a total of  145.00  from holding Wajax or generate 6.84% return on investment over 90 days.

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

Timbercreek Financial Corp  vs.  Wajax

Timbercreek Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timbercreek Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Wajax

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Timbercreek Financial and Wajax

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

The idea behind Timbercreek Financial Corp and Wajax 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.