Correlation Between IA Financial and Lycos Energy

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

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

Diversification Opportunities for IA Financial and Lycos Energy

-0.47

Correlation Coefficient

IA Financial  Lycos Energy

Very good diversification

The 3 months correlation between IAG and Lycos is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding iA Financial and Lycos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lycos Energy and IA 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 iA Financial are associated (or correlated) with Lycos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lycos Energy has no effect on the direction of IA Financial i.e., IA Financial and Lycos Energy go up and down completely randomly.

Pair Corralation between IA Financial and Lycos Energy

Assuming the 90 days trading horizon iA Financial is expected to generate 0.57 times more return on investment than Lycos Energy. However, iA Financial is 1.76 times less risky than Lycos Energy. It trades about 0.21 of its potential returns per unit of risk. Lycos Energy is currently generating about -0.03 per unit of risk. If you would invest  8,587  in iA Financial on September 5, 2024 and sell it today you would earn a total of  4,896  from holding iA Financial or generate 57.02% return on investment over 90 days.

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

iA Financial  vs.  Lycos Energy

iA Financial

Risk-Adjusted Performance

15 of 100

Good

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

Lycos Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lycos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lycos Energy is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IA Financial and Lycos Energy

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

The idea behind iA Financial and Lycos Energy 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.