Correlation Between FirstService Corp and Champion Iron

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

By analyzing existing cross correlation between FirstService Corp and Champion Iron, you can compare the effects of market volatilities on FirstService Corp and Champion Iron 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 FirstService Corp with a short position of Champion Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of FirstService Corp and Champion Iron.

Diversification Opportunities for FirstService Corp and Champion Iron

0.53

Correlation Coefficient

FirstService Corp  Champion Iron

Very weak diversification

The 3 months correlation between FirstService and Champion is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding FirstService Corp and Champion Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron and FirstService Corp 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 FirstService Corp are associated (or correlated) with Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron has no effect on the direction of FirstService Corp i.e., FirstService Corp and Champion Iron go up and down completely randomly.

Pair Corralation between FirstService Corp and Champion Iron

Assuming the 90 days trading horizon FirstService Corp is expected to generate 0.61 times more return on investment than Champion Iron. However, FirstService Corp is 1.63 times less risky than Champion Iron. It trades about -0.09 of its potential returns per unit of risk. Champion Iron is currently generating about -0.08 per unit of risk. If you would invest  26,473  in FirstService Corp on December 27, 2024 and sell it today you would lose (2,016) from holding FirstService Corp or give up 7.62% of portfolio value over 90 days.

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

FirstService Corp  vs.  Champion Iron

FirstService Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days FirstService Corp 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.

Champion Iron

Risk-Adjusted Performance

Very Weak

Over the last 90 days Champion Iron 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.

Pair Trading with FirstService Corp and Champion Iron

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

The idea behind FirstService Corp and Champion Iron 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.