Correlation Between Brookfield Infrastructure and IGM Financial
Can any of the company-specific risk be diversified away by investing in both Brookfield Infrastructure and IGM 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 Brookfield Infrastructure and IGM Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brookfield Infrastructure Partners and IGM Financial, you can compare the effects of market volatilities on Brookfield Infrastructure and IGM 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 Brookfield Infrastructure with a short position of IGM Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookfield Infrastructure and IGM Financial.
Diversification Opportunities for Brookfield Infrastructure and IGM Financial
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Brookfield and IGM is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Infrastructure Part and IGM Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGM Financial and Brookfield Infrastructure 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 Brookfield Infrastructure Partners are associated (or correlated) with IGM Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGM Financial has no effect on the direction of Brookfield Infrastructure i.e., Brookfield Infrastructure and IGM Financial go up and down completely randomly.
Pair Corralation between Brookfield Infrastructure and IGM Financial
Assuming the 90 days trading horizon Brookfield Infrastructure is expected to generate 1.27 times less return on investment than IGM Financial. But when comparing it to its historical volatility, Brookfield Infrastructure Partners is 1.38 times less risky than IGM Financial. It trades about 0.08 of its potential returns per unit of risk. IGM Financial is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,541 in IGM Financial on August 30, 2024 and sell it today you would earn a total of 1,198 from holding IGM Financial or generate 33.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brookfield Infrastructure Part vs. IGM Financial
Performance |
| Timeline |
| Brookfield Infrastructure |
| IGM Financial |
Brookfield Infrastructure and IGM Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brookfield Infrastructure and IGM Financial
The main advantage of trading using opposite Brookfield Infrastructure and IGM Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield Infrastructure position performs unexpectedly, IGM 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 IGM Financial will offset losses from the drop in IGM Financial's long position.The idea behind Brookfield Infrastructure Partners and IGM Financial 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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