Correlation Between Income Financial and CGX Energy

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

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

Diversification Opportunities for Income Financial and CGX Energy

0.26

Correlation Coefficient

Income Financial  CGX Energy

Modest diversification

The 3 months correlation between Income and CGX is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Income Financial Trust and CGX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGX Energy and Income 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 Income Financial Trust are associated (or correlated) with CGX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGX Energy has no effect on the direction of Income Financial i.e., Income Financial and CGX Energy go up and down completely randomly.

Pair Corralation between Income Financial and CGX Energy

Assuming the 90 days trading horizon Income Financial Trust is expected to under-perform the CGX Energy. But the stock apears to be less risky and, when comparing its historical volatility, Income Financial Trust is 5.7 times less risky than CGX Energy. The stock trades about -0.05 of its potential returns per unit of risk. The CGX Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  14.00  in CGX Energy on December 20, 2024 and sell it today you would lose (1.00) from holding CGX Energy or give up 7.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Income Financial Trust  vs.  CGX Energy

Income Financial Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Income Financial Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Income Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

CGX Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CGX Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CGX Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Income Financial and CGX Energy

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

The idea behind Income Financial Trust and CGX Energy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.