Correlation Between West Fraser and Interfor Corp

Can any of the company-specific risk be diversified away by investing in both West Fraser and Interfor Corp 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 Interfor Corp 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 Interfor Corp, you can compare the effects of market volatilities on West Fraser and Interfor Corp 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 Interfor Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Fraser and Interfor Corp.

Diversification Opportunities for West Fraser and Interfor Corp

0.54

Correlation Coefficient

West Fraser  Interfor Corp

Very weak diversification

The 3 months correlation between West and Interfor is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Interfor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interfor Corp 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 Interfor Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interfor Corp has no effect on the direction of West Fraser i.e., West Fraser and Interfor Corp go up and down completely randomly.

Pair Corralation between West Fraser and Interfor Corp

Assuming the 90 days trading horizon West Fraser Timber is expected to generate 0.64 times more return on investment than Interfor Corp. However, West Fraser Timber is 1.57 times less risky than Interfor Corp. It trades about -0.01 of its potential returns per unit of risk. Interfor Corp is currently generating about -0.04 per unit of risk. If you would invest  10,090  in West Fraser Timber on April 23, 2025 and sell it today you would lose (169.00) from holding West Fraser Timber or give up 1.67% of portfolio value over 90 days.

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

West Fraser Timber  vs.  Interfor Corp

West Fraser Timber

Risk-Adjusted Performance

Very Weak

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

Interfor Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with West Fraser and Interfor Corp

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

The idea behind West Fraser Timber and Interfor Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.