Correlation Between Intact Financial and Topaz Energy

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

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

Diversification Opportunities for Intact Financial and Topaz Energy

0.66

Correlation Coefficient

Intact Financial  Topaz Energy

Poor diversification

The 3 months correlation between Intact and Topaz is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Intact Financial and Topaz Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topaz Energy 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 Topaz Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topaz Energy Corp has no effect on the direction of Intact Financial i.e., Intact Financial and Topaz Energy go up and down completely randomly.

Pair Corralation between Intact Financial and Topaz Energy

Assuming the 90 days trading horizon Intact Financial is expected to generate 1.02 times less return on investment than Topaz Energy. But when comparing it to its historical volatility, Intact Financial is 1.27 times less risky than Topaz Energy. It trades about 0.07 of its potential returns per unit of risk. Topaz Energy Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,906  in Topaz Energy Corp on September 20, 2024 and sell it today you would earn a total of  715.00  from holding Topaz Energy Corp or generate 37.51% return on investment over 90 days.

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

Intact Financial  vs.  Topaz Energy Corp

Intact Financial

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Intact Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Intact Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Topaz Energy Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Topaz Energy Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Topaz Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Intact Financial and Topaz Energy

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

The idea behind Intact Financial and Topaz Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.