Correlation Between Great West and Power Financial
Can any of the company-specific risk be diversified away by investing in both Great West and Power 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 Great West and Power Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Great West Lifeco and Power Financial Corp, you can compare the effects of market volatilities on Great West and Power 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 Great West with a short position of Power Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great West and Power Financial.
Diversification Opportunities for Great West and Power Financial
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Great and Power is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Great West Lifeco and Power Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Financial Corp and Great West 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 Great West Lifeco are associated (or correlated) with Power Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Financial Corp has no effect on the direction of Great West i.e., Great West and Power Financial go up and down completely randomly.
Pair Corralation between Great West and Power Financial
Assuming the 90 days trading horizon Great West Lifeco is expected to under-perform the Power Financial. But the preferred stock apears to be less risky and, when comparing its historical volatility, Great West Lifeco is 1.6 times less risky than Power Financial. The preferred stock trades about -0.22 of its potential returns per unit of risk. The Power Financial Corp is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest 2,016 in Power Financial Corp on August 29, 2024 and sell it today you would lose (38.00) from holding Power Financial Corp or give up 1.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Great West Lifeco vs. Power Financial Corp
Performance |
| Timeline |
| Great West Lifeco |
| Power Financial Corp |
Great West and Power Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Great West and Power Financial
The main advantage of trading using opposite Great West and Power Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great West position performs unexpectedly, Power 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 Power Financial will offset losses from the drop in Power Financial's long position.| Great West vs. Aya Gold Silver | Great West vs. Profound Medical Corp | Great West vs. Globex Mining Enterprises | Great West vs. Perseus Mining |
| Power Financial vs. Manulife Financial Corp | Power Financial vs. Great West Lifeco | Power Financial vs. Great West Lifeco |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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