Correlation Between US Financial and IA Financial

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

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

Diversification Opportunities for US Financial and IA Financial

0.77

Correlation Coefficient

US Financial  IA Financial

Poor diversification

The 3 months correlation between FTU-PB and IAG is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA Financial and US 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 US Financial 15 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 US Financial i.e., US Financial and IA Financial go up and down completely randomly.

Pair Corralation between US Financial and IA Financial

Assuming the 90 days trading horizon US Financial 15 is expected to under-perform the IA Financial. In addition to that, US Financial is 1.59 times more volatile than iA Financial. It trades about -0.19 of its total potential returns per unit of risk. iA Financial is currently generating about -0.24 per unit of volatility. If you would invest  13,561  in iA Financial on October 11, 2024 and sell it today you would lose (482.00) from holding iA Financial or give up 3.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

US Financial 15  vs.  iA Financial

US Financial 15

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in US Financial 15 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, US Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

iA Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iA Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IA Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Financial and IA Financial

The main advantage of trading using opposite US Financial and IA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Financial 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 US Financial 15 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.