Correlation Between James Hardie and Summit Materials

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

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

Diversification Opportunities for James Hardie and Summit Materials

-0.58

Correlation Coefficient

James Hardie  Summit Materials

Excellent diversification

The 3 months correlation between James and Summit is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding James Hardie Industries and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and James Hardie 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 James Hardie Industries are associated (or correlated) with Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of James Hardie i.e., James Hardie and Summit Materials go up and down completely randomly.

Pair Corralation between James Hardie and Summit Materials

Considering the 90-day investment horizon James Hardie Industries is expected to under-perform the Summit Materials. In addition to that, James Hardie is 3.6 times more volatile than Summit Materials. It trades about -0.33 of its total potential returns per unit of risk. Summit Materials is currently generating about -0.23 per unit of volatility. If you would invest  5,166  in Summit Materials on September 23, 2024 and sell it today you would lose (116.00) from holding Summit Materials or give up 2.25% of portfolio value over 90 days.

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

James Hardie Industries  vs.  Summit Materials

James Hardie Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days James Hardie Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Summit Materials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with James Hardie and Summit Materials

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

The idea behind James Hardie Industries and Summit Materials 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.