Correlation Between Main Street and IA Financial

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

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

Diversification Opportunities for Main Street and IA Financial

-0.29

Correlation Coefficient

Main Street  IA Financial

Very good diversification

The 3 months correlation between Main and IAFNF is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA Financial and Main Street 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 Main Street Capital are associated (or correlated) with IA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iA Financial has no effect on the direction of Main Street i.e., Main Street and IA Financial go up and down completely randomly.

Pair Corralation between Main Street and IA Financial

Given the investment horizon of 90 days Main Street Capital is expected to generate 0.85 times more return on investment than IA Financial. However, Main Street Capital is 1.17 times less risky than IA Financial. It trades about 0.17 of its potential returns per unit of risk. iA Financial is currently generating about -0.02 per unit of risk. If you would invest  5,446  in Main Street Capital on November 29, 2024 and sell it today you would earn a total of  512.00  from holding Main Street Capital or generate 9.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Main Street Capital  vs.  iA Financial

Main Street Capital

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Main Street may actually be approaching a critical reversion point that can send shares even higher in March 2025.

iA Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days iA Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IA Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Main Street and IA Financial

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

The idea behind Main Street Capital and iA Financial 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.