Correlation Between Intact Financial and Falcon Energy

Can any of the company-specific risk be diversified away by investing in both Intact Financial and Falcon 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 Intact Financial and Falcon Energy 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 Falcon Energy Materials, you can compare the effects of market volatilities on Intact Financial and Falcon 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 Intact Financial with a short position of Falcon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intact Financial and Falcon Energy.

Diversification Opportunities for Intact Financial and Falcon Energy

0.53

Correlation Coefficient

Intact Financial  Falcon Energy

Very weak diversification

The 3 months correlation between Intact and Falcon is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Intact Financial Corp and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials 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 Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Intact Financial i.e., Intact Financial and Falcon Energy go up and down completely randomly.

Pair Corralation between Intact Financial and Falcon Energy

Assuming the 90 days trading horizon Intact Financial is expected to generate 4.39 times less return on investment than Falcon Energy. But when comparing it to its historical volatility, Intact Financial Corp is 6.65 times less risky than Falcon Energy. It trades about 0.08 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  64.00  in Falcon Energy Materials on September 13, 2024 and sell it today you would earn a total of  6.00  from holding Falcon Energy Materials or generate 9.38% return on investment over 90 days.

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

Intact Financial Corp  vs.  Falcon Energy Materials

Intact Financial Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Intact Financial Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

Falcon Energy Materials

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Falcon Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Intact Financial and Falcon Energy

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

The idea behind Intact Financial Corp and Falcon Energy Materials 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.