Correlation Between Financial and Canadian Life

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

By analyzing existing cross correlation between Financial 15 Split and Canadian Life Companies, you can compare the effects of market volatilities on Financial and Canadian Life 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 Financial with a short position of Canadian Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and Canadian Life.

Diversification Opportunities for Financial and Canadian Life

0.91

Correlation Coefficient

Financial  Canadian Life

Almost no diversification

The 3 months correlation between Financial and Canadian is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and Canadian Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Life Companies and Financial 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 Financial 15 Split are associated (or correlated) with Canadian Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Life Companies has no effect on the direction of Financial i.e., Financial and Canadian Life go up and down completely randomly.

Pair Corralation between Financial and Canadian Life

Assuming the 90 days trading horizon Financial is expected to generate 1.12 times less return on investment than Canadian Life. But when comparing it to its historical volatility, Financial 15 Split is 1.55 times less risky than Canadian Life. It trades about 0.35 of its potential returns per unit of risk. Canadian Life Companies is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  556.00  in Canadian Life Companies on September 13, 2024 and sell it today you would earn a total of  152.00  from holding Canadian Life Companies or generate 27.34% return on investment over 90 days.

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

Financial 15 Split  vs.  Canadian Life Companies

Financial 15 Split

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Life Companies

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Life Companies are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Canadian Life displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial and Canadian Life

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

The idea behind Financial 15 Split and Canadian Life Companies 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.