Correlation Between IGM Financial and Microsoft Corp

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

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

Diversification Opportunities for IGM Financial and Microsoft Corp

0.55

Correlation Coefficient

IGM Financial  Microsoft Corp

Very weak diversification

The 3 months correlation between IGM and Microsoft is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding IGM Financial and Microsoft Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp CDR 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 Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp CDR has no effect on the direction of IGM Financial i.e., IGM Financial and Microsoft Corp go up and down completely randomly.

Pair Corralation between IGM Financial and Microsoft Corp

Assuming the 90 days trading horizon IGM Financial is expected to generate 0.87 times more return on investment than Microsoft Corp. However, IGM Financial is 1.15 times less risky than Microsoft Corp. It trades about 0.16 of its potential returns per unit of risk. Microsoft Corp CDR is currently generating about 0.01 per unit of risk. If you would invest  3,246  in IGM Financial on October 9, 2024 and sell it today you would earn a total of  1,207  from holding IGM Financial or generate 37.18% return on investment over 90 days.

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

IGM Financial  vs.  Microsoft Corp CDR

IGM Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, IGM Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Microsoft Corp CDR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IGM Financial and Microsoft Corp

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

The idea behind IGM Financial and Microsoft Corp CDR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.