Correlation Between Great West and IA Financial
Can any of the company-specific risk be diversified away by investing in both Great West and IA 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 IA 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 iA Financial, you can compare the effects of market volatilities on Great West and IA 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 IA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great West and IA Financial.
Diversification Opportunities for Great West and IA Financial
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Great and IAG is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Great West Lifeco and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA Financial 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 IA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iA Financial has no effect on the direction of Great West i.e., Great West and IA Financial go up and down completely randomly.
Pair Corralation between Great West and IA Financial
Assuming the 90 days trading horizon Great West is expected to generate 4.85 times less return on investment than IA Financial. But when comparing it to its historical volatility, Great West Lifeco is 2.18 times less risky than IA Financial. It trades about 0.07 of its potential returns per unit of risk. iA Financial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 10,333 in iA Financial on November 2, 2024 and sell it today you would earn a total of 3,249 from holding iA Financial or generate 31.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Great West Lifeco vs. iA Financial
Performance |
| Timeline |
| Great West Lifeco |
| iA Financial |
Great West and IA Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Great West and IA Financial
The main advantage of trading using opposite Great West and IA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great West position performs unexpectedly, IA 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 IA Financial will offset losses from the drop in IA Financial's long position.| Great West vs. Sun Life Financial | Great West vs. Power | Great West vs. Manulife Financial Corp | Great West vs. National Bank of |
| IA Financial vs. Great West Lifeco | IA Financial vs. Intact Financial | IA Financial vs. IGM Financial | IA Financial vs. Sun Life Financial |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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