Correlation Between North American and AGF Management

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

By analyzing existing cross correlation between North American Financial and AGF Management Limited, you can compare the effects of market volatilities on North American and AGF Management 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 North American with a short position of AGF Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and AGF Management.

Diversification Opportunities for North American and AGF Management

0.83

Correlation Coefficient

North American  AGF Management

Very poor diversification

The 3 months correlation between North and AGF is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and AGF Management Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGF Management and North American 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 North American Financial are associated (or correlated) with AGF Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGF Management has no effect on the direction of North American i.e., North American and AGF Management go up and down completely randomly.

Pair Corralation between North American and AGF Management

Assuming the 90 days trading horizon North American is expected to generate 1.3 times less return on investment than AGF Management. But when comparing it to its historical volatility, North American Financial is 1.54 times less risky than AGF Management. It trades about 0.33 of its potential returns per unit of risk. AGF Management Limited is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  776.00  in AGF Management Limited on September 12, 2024 and sell it today you would earn a total of  324.00  from holding AGF Management Limited or generate 41.75% return on investment over 90 days.

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

North American Financial  vs.  AGF Management Limited

North American Financial

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

AGF Management

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AGF Management Limited are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, AGF Management unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and AGF Management

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

The idea behind North American Financial and AGF Management Limited 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.