Correlation Between Alphabet and IGM Financial

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

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

Diversification Opportunities for Alphabet and IGM Financial

0.66

Correlation Coefficient

Alphabet  IGM Financial

Poor diversification

The 3 months correlation between Alphabet and IGM is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc CDR and IGM Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGM Financial and Alphabet 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 Alphabet Inc CDR 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 Alphabet i.e., Alphabet and IGM Financial go up and down completely randomly.

Pair Corralation between Alphabet and IGM Financial

Assuming the 90 days trading horizon Alphabet Inc CDR is expected to generate 2.26 times more return on investment than IGM Financial. However, Alphabet is 2.26 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 -0.11 per unit of risk. If you would invest  2,819  in Alphabet Inc CDR on September 24, 2024 and sell it today you would earn a total of  442.00  from holding Alphabet Inc CDR or generate 15.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Alphabet Inc CDR  vs.  IGM Financial

Alphabet CDR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

IGM Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 18 (%) 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 Alphabet and IGM Financial

The main advantage of trading using opposite Alphabet and IGM Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc CDR 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.