Correlation Between US Financial and Canlan Ice

Can any of the company-specific risk be diversified away by investing in both US Financial and Canlan Ice 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 Canlan Ice 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 Canlan Ice Sports, you can compare the effects of market volatilities on US Financial and Canlan Ice 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 Canlan Ice. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Financial and Canlan Ice.

Diversification Opportunities for US Financial and Canlan Ice

0.44

Correlation Coefficient

US Financial  Canlan Ice

Very weak diversification

The 3 months correlation between FTU-PB and Canlan is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 and Canlan Ice Sports in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canlan Ice Sports 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 Canlan Ice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canlan Ice Sports has no effect on the direction of US Financial i.e., US Financial and Canlan Ice go up and down completely randomly.

Pair Corralation between US Financial and Canlan Ice

Assuming the 90 days trading horizon US Financial 15 is expected to generate 0.72 times more return on investment than Canlan Ice. However, US Financial 15 is 1.39 times less risky than Canlan Ice. It trades about -0.22 of its potential returns per unit of risk. Canlan Ice Sports is currently generating about -0.21 per unit of risk. If you would invest  772.00  in US Financial 15 on October 5, 2024 and sell it today you would lose (39.00) from holding US Financial 15 or give up 5.05% of portfolio value over 90 days.

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

US Financial 15  vs.  Canlan Ice Sports

US Financial 15

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Financial 15 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, US Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Canlan Ice Sports

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canlan Ice Sports has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Canlan Ice is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with US Financial and Canlan Ice

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

The idea behind US Financial 15 and Canlan Ice Sports 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.