Correlation Between West Fraser and Canfor

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

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

Diversification Opportunities for West Fraser and Canfor

0.71

Correlation Coefficient

West Fraser  Canfor

Poor diversification

The 3 months correlation between West and Canfor is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Canfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor and West Fraser 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 West Fraser Timber are associated (or correlated) with Canfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor has no effect on the direction of West Fraser i.e., West Fraser and Canfor go up and down completely randomly.

Pair Corralation between West Fraser and Canfor

Considering the 90-day investment horizon West Fraser is expected to generate 1.2 times less return on investment than Canfor. But when comparing it to its historical volatility, West Fraser Timber is 1.31 times less risky than Canfor. It trades about 0.04 of its potential returns per unit of risk. Canfor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,129  in Canfor on September 13, 2024 and sell it today you would earn a total of  37.00  from holding Canfor or generate 3.28% return on investment over 90 days.

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

West Fraser Timber  vs.  Canfor

West Fraser Timber

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Fraser Timber are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, West Fraser is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canfor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canfor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canfor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with West Fraser and Canfor

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

The idea behind West Fraser Timber and Canfor 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.