Correlation Between IGM Financial and Definity Financial

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

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

Diversification Opportunities for IGM Financial and Definity Financial

0.92

Correlation Coefficient

IGM Financial  Definity Financial

Almost no diversification

The 3 months correlation between IGM and Definity is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding IGM Financial and Definity Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Definity Financial Corp and IGM 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 IGM Financial are associated (or correlated) with Definity Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Definity Financial Corp has no effect on the direction of IGM Financial i.e., IGM Financial and Definity Financial go up and down completely randomly.

Pair Corralation between IGM Financial and Definity Financial

Assuming the 90 days trading horizon IGM Financial is expected to under-perform the Definity Financial. But the stock apears to be less risky and, when comparing its historical volatility, IGM Financial is 1.03 times less risky than Definity Financial. The stock trades about -0.06 of its potential returns per unit of risk. The Definity Financial Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,853  in Definity Financial Corp on September 30, 2024 and sell it today you would lose (30.00) from holding Definity Financial Corp or give up 0.51% of portfolio value over 90 days.

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

IGM Financial  vs.  Definity Financial Corp

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.

Definity Financial Corp

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with IGM Financial and Definity Financial

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

The idea behind IGM Financial and Definity Financial Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.