Correlation Between Intact Financial and First Trust

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

By analyzing existing cross correlation between Intact Financial Corp and First Trust Indxx, you can compare the effects of market volatilities on Intact Financial and First Trust 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 Intact Financial with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intact Financial and First Trust.

Diversification Opportunities for Intact Financial and First Trust

0.25

Correlation Coefficient

Intact Financial  First Trust

Modest diversification

The 3 months correlation between Intact and First is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Intact Financial Corp and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and Intact 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 Intact Financial Corp are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Indxx has no effect on the direction of Intact Financial i.e., Intact Financial and First Trust go up and down completely randomly.

Pair Corralation between Intact Financial and First Trust

Assuming the 90 days trading horizon Intact Financial Corp is expected to under-perform the First Trust. But the preferred stock apears to be less risky and, when comparing its historical volatility, Intact Financial Corp is 1.58 times less risky than First Trust. The preferred stock trades about -0.03 of its potential returns per unit of risk. The First Trust Indxx is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,197  in First Trust Indxx on December 30, 2024 and sell it today you would earn a total of  24.00  from holding First Trust Indxx or generate 2.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Intact Financial Corp  vs.  First Trust Indxx

Intact Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Intact Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Intact Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Indxx

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Intact Financial and First Trust

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

The idea behind Intact Financial Corp and First Trust Indxx 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.