Correlation Between North American and IA Financial

Can any of the company-specific risk be diversified away by investing in both North American and IA 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 North American and IA Financial 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 iA Financial, you can compare the effects of market volatilities on North American and IA 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 North American with a short position of IA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and IA Financial.

Diversification Opportunities for North American and IA Financial

0.23

Correlation Coefficient

North American  IA Financial

Modest diversification

The 3 months correlation between North and IAG is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA Financial 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 IA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iA Financial has no effect on the direction of North American i.e., North American and IA Financial go up and down completely randomly.

Pair Corralation between North American and IA Financial

Assuming the 90 days trading horizon North American Financial is expected to under-perform the IA Financial. In addition to that, North American is 1.18 times more volatile than iA Financial. It trades about -0.07 of its total potential returns per unit of risk. iA Financial is currently generating about 0.04 per unit of volatility. If you would invest  13,255  in iA Financial on December 29, 2024 and sell it today you would earn a total of  444.00  from holding iA Financial or generate 3.35% return on investment over 90 days.

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

North American Financial  vs.  iA Financial

North American Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Financial 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.

iA Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iA Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, IA Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with North American and IA Financial

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

The idea behind North American Financial and iA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..