Correlation Between Desjardins Canadian and Desjardins American

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

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

Diversification Opportunities for Desjardins Canadian and Desjardins American

-0.32

Correlation Coefficient

Desjardins Canadian  Desjardins American

Very good diversification

The 3 months correlation between Desjardins and Desjardins is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Desjardins Canadian Corporate and Desjardins American Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins American and Desjardins Canadian 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 Desjardins Canadian Corporate are associated (or correlated) with Desjardins American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins American has no effect on the direction of Desjardins Canadian i.e., Desjardins Canadian and Desjardins American go up and down completely randomly.

Pair Corralation between Desjardins Canadian and Desjardins American

Assuming the 90 days trading horizon Desjardins Canadian Corporate is expected to generate 0.28 times more return on investment than Desjardins American. However, Desjardins Canadian Corporate is 3.63 times less risky than Desjardins American. It trades about 0.07 of its potential returns per unit of risk. Desjardins American Equity is currently generating about -0.06 per unit of risk. If you would invest  2,093  in Desjardins Canadian Corporate on December 26, 2024 and sell it today you would earn a total of  25.00  from holding Desjardins Canadian Corporate or generate 1.19% return on investment over 90 days.

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

Desjardins Canadian Corporate  vs.  Desjardins American Equity

Desjardins Canadian

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins Canadian Corporate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Desjardins Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Desjardins American

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Desjardins Canadian and Desjardins American

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

The idea behind Desjardins Canadian Corporate and Desjardins American Equity 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.