Correlation Between IGM Financial and Power

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

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

Diversification Opportunities for IGM Financial and Power

0.95

Correlation Coefficient

IGM Financial  Power

Almost no diversification

The 3 months correlation between IGM and Power is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding IGM Financial and Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power 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 Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power has no effect on the direction of IGM Financial i.e., IGM Financial and Power go up and down completely randomly.

Pair Corralation between IGM Financial and Power

Assuming the 90 days trading horizon IGM Financial is expected to generate 1.05 times more return on investment than Power. However, IGM Financial is 1.05 times more volatile than Power. It trades about 0.36 of its potential returns per unit of risk. Power is currently generating about 0.26 per unit of risk. If you would invest  3,861  in IGM Financial on September 3, 2024 and sell it today you would earn a total of  870.00  from holding IGM Financial or generate 22.53% return on investment over 90 days.

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

IGM Financial  vs.  Power

IGM Financial

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 28 (%) 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.

Power

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Power are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IGM Financial and Power

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

The idea behind IGM Financial and Power 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.