Correlation Between North American and IGM Financial

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

Diversification Opportunities for North American and IGM Financial

0.96

Correlation Coefficient

North American  IGM Financial

Almost no diversification

The 3 months correlation between North and IGM is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and IGM Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGM 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 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 North American i.e., North American and IGM Financial go up and down completely randomly.

Pair Corralation between North American and IGM Financial

Assuming the 90 days trading horizon North American Financial is expected to generate 1.51 times more return on investment than IGM Financial. However, North American is 1.51 times more volatile than IGM Financial. It trades about 0.33 of its potential returns per unit of risk. IGM Financial is currently generating about 0.41 per unit of risk. If you would invest  553.00  in North American Financial on September 12, 2024 and sell it today you would earn a total of  174.00  from holding North American Financial or generate 31.46% return on investment over 90 days.

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

North American Financial  vs.  IGM Financial

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.

IGM Financial

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, IGM Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and IGM Financial

The main advantage of trading using opposite North American and IGM Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Financial 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.