Correlation Between IGM Financial and Russel Metals

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

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

Diversification Opportunities for IGM Financial and Russel Metals

0.81

Correlation Coefficient

IGM Financial  Russel Metals

Very poor diversification

The 3 months correlation between IGM and Russel is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding IGM Financial and Russel Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russel Metals 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 Russel Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russel Metals has no effect on the direction of IGM Financial i.e., IGM Financial and Russel Metals go up and down completely randomly.

Pair Corralation between IGM Financial and Russel Metals

Assuming the 90 days trading horizon IGM Financial is expected to generate 0.96 times more return on investment than Russel Metals. However, IGM Financial is 1.04 times less risky than Russel Metals. It trades about -0.02 of its potential returns per unit of risk. Russel Metals is currently generating about -0.12 per unit of risk. If you would invest  4,643  in IGM Financial on December 2, 2024 and sell it today you would lose (84.00) from holding IGM Financial or give up 1.81% of portfolio value over 90 days.

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

IGM Financial  vs.  Russel Metals

IGM Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days IGM Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, IGM Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Russel Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Russel Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with IGM Financial and Russel Metals

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

The idea behind IGM Financial and Russel Metals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.