Correlation Between Western Forest and Ufp Industries

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

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

Diversification Opportunities for Western Forest and Ufp Industries

0.0

Correlation Coefficient

Western Forest  Ufp Industries

Pay attention - limited upside

The 3 months correlation between Western and Ufp is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Western Forest Products and Ufp Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ufp Industries and Western Forest 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 Western Forest Products are associated (or correlated) with Ufp Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ufp Industries has no effect on the direction of Western Forest i.e., Western Forest and Ufp Industries go up and down completely randomly.

Pair Corralation between Western Forest and Ufp Industries

Assuming the 90 days horizon Western Forest Products is expected to under-perform the Ufp Industries. In addition to that, Western Forest is 1.35 times more volatile than Ufp Industries. It trades about -0.13 of its total potential returns per unit of risk. Ufp Industries is currently generating about 0.01 per unit of volatility. If you would invest  11,491  in Ufp Industries on March 8, 2024 and sell it today you would earn a total of  72.00  from holding Ufp Industries or generate 0.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Western Forest Products  vs.  Ufp Industries

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Ufp Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ufp Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Ufp Industries is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Western Forest and Ufp Industries

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

The idea behind Western Forest Products and Ufp Industries 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.