Correlation Between IA Financial and Canadian Western

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

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

Diversification Opportunities for IA Financial and Canadian Western

0.84

Correlation Coefficient

IA Financial  Canadian Western

Very poor diversification

The 3 months correlation between IAG and Canadian is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iA Financial and Canadian Western Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Western Bank and IA 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 iA Financial are associated (or correlated) with Canadian Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Western Bank has no effect on the direction of IA Financial i.e., IA Financial and Canadian Western go up and down completely randomly.

Pair Corralation between IA Financial and Canadian Western

Assuming the 90 days trading horizon iA Financial is expected to generate 0.47 times more return on investment than Canadian Western. However, iA Financial is 2.15 times less risky than Canadian Western. It trades about 0.12 of its potential returns per unit of risk. Canadian Western Bank is currently generating about -0.05 per unit of risk. If you would invest  13,070  in iA Financial on September 18, 2024 and sell it today you would earn a total of  304.00  from holding iA Financial or generate 2.33% return on investment over 90 days.

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

iA Financial  vs.  Canadian Western Bank

iA Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iA Financial are ranked lower than 13 (%) 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.

Canadian Western Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Western Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Canadian Western may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IA Financial and Canadian Western

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

The idea behind iA Financial and Canadian Western Bank 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.