Correlation Between Intact Financial and Diversified Royalty

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

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

Diversification Opportunities for Intact Financial and Diversified Royalty

0.83

Correlation Coefficient

Intact Financial  Diversified Royalty

Very poor diversification

The 3 months correlation between Intact and Diversified is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Intact Financial and Diversified Royalty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Royalty Corp and Intact 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 Intact Financial are associated (or correlated) with Diversified Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Royalty Corp has no effect on the direction of Intact Financial i.e., Intact Financial and Diversified Royalty go up and down completely randomly.

Pair Corralation between Intact Financial and Diversified Royalty

Assuming the 90 days trading horizon Intact Financial is expected to generate 1.38 times more return on investment than Diversified Royalty. However, Intact Financial is 1.38 times more volatile than Diversified Royalty Corp. It trades about 0.13 of its potential returns per unit of risk. Diversified Royalty Corp is currently generating about 0.18 per unit of risk. If you would invest  25,073  in Intact Financial on September 4, 2024 and sell it today you would earn a total of  1,887  from holding Intact Financial or generate 7.53% return on investment over 90 days.

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

Intact Financial  vs.  Diversified Royalty Corp

Intact Financial

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intact Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Intact Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diversified Royalty Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Royalty Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Diversified Royalty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Intact Financial and Diversified Royalty

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

The idea behind Intact Financial and Diversified Royalty Corp 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.