Correlation Between Algonquin Power and IGM Financial

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

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

Diversification Opportunities for Algonquin Power and IGM Financial

-0.62

Correlation Coefficient

Algonquin Power  IGM Financial

Excellent diversification

The 3 months correlation between Algonquin and IGM is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and IGM Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGM Financial and Algonquin Power 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 Algonquin Power Utilities are associated (or correlated) with IGM Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGM Financial has no effect on the direction of Algonquin Power i.e., Algonquin Power and IGM Financial go up and down completely randomly.

Pair Corralation between Algonquin Power and IGM Financial

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to under-perform the IGM Financial. In addition to that, Algonquin Power is 1.32 times more volatile than IGM Financial. It trades about -0.07 of its total potential returns per unit of risk. IGM Financial is currently generating about 0.16 per unit of volatility. If you would invest  4,122  in IGM Financial on October 11, 2024 and sell it today you would earn a total of  427.00  from holding IGM Financial or generate 10.36% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  IGM Financial

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

IGM Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, IGM Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Algonquin Power and IGM Financial

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

The idea behind Algonquin Power Utilities and IGM Financial 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.