Correlation Between Air Canada and Definity Financial
Can any of the company-specific risk be diversified away by investing in both Air Canada and Definity 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 Air Canada and Definity Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air Canada and Definity Financial Corp, you can compare the effects of market volatilities on Air Canada and Definity 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 Air Canada with a short position of Definity Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Canada and Definity Financial.
Diversification Opportunities for Air Canada and Definity Financial
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Air and Definity is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Definity Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Definity Financial Corp and Air Canada 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 Air Canada are associated (or correlated) with Definity Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Definity Financial Corp has no effect on the direction of Air Canada i.e., Air Canada and Definity Financial go up and down completely randomly.
Pair Corralation between Air Canada and Definity Financial
Assuming the 90 days horizon Air Canada is expected to generate 1.65 times more return on investment than Definity Financial. However, Air Canada is 1.65 times more volatile than Definity Financial Corp. It trades about 0.12 of its potential returns per unit of risk. Definity Financial Corp is currently generating about 0.18 per unit of risk. If you would invest 1,833 in Air Canada on September 3, 2024 and sell it today you would earn a total of 631.00 from holding Air Canada or generate 34.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air Canada vs. Definity Financial Corp
Performance |
| Timeline |
| Air Canada |
| Definity Financial Corp |
Air Canada and Definity Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air Canada and Definity Financial
The main advantage of trading using opposite Air Canada and Definity Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Canada position performs unexpectedly, Definity 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 Definity Financial will offset losses from the drop in Definity Financial's long position.The idea behind Air Canada and Definity Financial 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.| Definity Financial vs. Trisura Group | Definity Financial vs. Pet Valu Holdings | Definity Financial vs. Intact Financial | Definity Financial vs. Topaz Energy Corp |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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