Correlation Between AutoCanada and Kingsway Financial

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

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

Diversification Opportunities for AutoCanada and Kingsway Financial

0.59

Correlation Coefficient

AutoCanada  Kingsway Financial

Very weak diversification

The 3 months correlation between AutoCanada and Kingsway is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding AutoCanada and Kingsway Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingsway Financial and AutoCanada 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 AutoCanada are associated (or correlated) with Kingsway Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingsway Financial has no effect on the direction of AutoCanada i.e., AutoCanada and Kingsway Financial go up and down completely randomly.

Pair Corralation between AutoCanada and Kingsway Financial

Assuming the 90 days horizon AutoCanada is expected to generate 1.38 times more return on investment than Kingsway Financial. However, AutoCanada is 1.38 times more volatile than Kingsway Financial Services. It trades about 0.29 of its potential returns per unit of risk. Kingsway Financial Services is currently generating about -0.22 per unit of risk. If you would invest  1,186  in AutoCanada on September 5, 2024 and sell it today you would earn a total of  143.00  from holding AutoCanada or generate 12.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

AutoCanada  vs.  Kingsway Financial Services

AutoCanada

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoCanada are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward indicators, AutoCanada reported solid returns over the last few months and may actually be approaching a breakup point.

Kingsway Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kingsway Financial Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Kingsway Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AutoCanada and Kingsway Financial

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

The idea behind AutoCanada and Kingsway Financial Services 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.