Correlation Between IShares Canadian and Desjardins American

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

By analyzing existing cross correlation between iShares Canadian HYBrid and Desjardins American Equity, you can compare the effects of market volatilities on IShares Canadian and Desjardins American 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 IShares Canadian with a short position of Desjardins American. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and Desjardins American.

Diversification Opportunities for IShares Canadian and Desjardins American

0.67

Correlation Coefficient

IShares Canadian  Desjardins American

Poor diversification

The 3 months correlation between IShares and Desjardins is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian HYBrid and Desjardins American Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins American and IShares Canadian 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 iShares Canadian HYBrid are associated (or correlated) with Desjardins American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins American has no effect on the direction of IShares Canadian i.e., IShares Canadian and Desjardins American go up and down completely randomly.

Pair Corralation between IShares Canadian and Desjardins American

Assuming the 90 days trading horizon IShares Canadian is expected to generate 2.8 times less return on investment than Desjardins American. But when comparing it to its historical volatility, iShares Canadian HYBrid is 3.39 times less risky than Desjardins American. It trades about 0.09 of its potential returns per unit of risk. Desjardins American Equity is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,476  in Desjardins American Equity on October 24, 2024 and sell it today you would earn a total of  32.00  from holding Desjardins American Equity or generate 1.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

iShares Canadian HYBrid  vs.  Desjardins American Equity

iShares Canadian HYBrid

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Desjardins American

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with IShares Canadian and Desjardins American

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

The idea behind iShares Canadian HYBrid and Desjardins American Equity 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.