Correlation Between Air Canada and VersaBank

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

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

Diversification Opportunities for Air Canada and VersaBank

0.88

Correlation Coefficient

Air Canada  VersaBank

Very poor diversification

The 3 months correlation between Air and VersaBank is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank and Air Canada 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 Air Canada are associated (or correlated) with VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of Air Canada i.e., Air Canada and VersaBank go up and down completely randomly.

Pair Corralation between Air Canada and VersaBank

Assuming the 90 days horizon Air Canada is expected to generate 1.0 times more return on investment than VersaBank. However, Air Canada is 1.0 times more volatile than VersaBank. It trades about 0.19 of its potential returns per unit of risk. VersaBank is currently generating about 0.06 per unit of risk. If you would invest  1,596  in Air Canada on September 23, 2024 and sell it today you would earn a total of  600.00  from holding Air Canada or generate 37.59% return on investment over 90 days.

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

Air Canada  vs.  VersaBank

Air Canada

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Air Canada displayed solid returns over the last few months and may actually be approaching a breakup point.

VersaBank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VersaBank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, VersaBank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Air Canada and VersaBank

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

The idea behind Air Canada and VersaBank 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.