Correlation Between National Bank and IA Financial

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

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

Diversification Opportunities for National Bank and IA Financial

0.77

Correlation Coefficient

National Bank  IA Financial

Poor diversification

The 3 months correlation between National and IAG is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA Financial and National Bank 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 National Bank of 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 National Bank i.e., National Bank and IA Financial go up and down completely randomly.

Pair Corralation between National Bank and IA Financial

Assuming the 90 days horizon National Bank of is expected to under-perform the IA Financial. In addition to that, National Bank is 1.29 times more volatile than iA Financial. It trades about -0.13 of its total potential returns per unit of risk. iA Financial is currently generating about 0.05 per unit of volatility. If you would invest  13,141  in iA Financial on September 26, 2024 and sell it today you would earn a total of  123.00  from holding iA Financial or generate 0.94% return on investment over 90 days.

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

National Bank of  vs.  iA Financial

National Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, National Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iA Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iA Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IA Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and IA Financial

The main advantage of trading using opposite National Bank and IA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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 National Bank of 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.