Correlation Between Canadian Imperial and Canadian Utilities

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

By analyzing existing cross correlation between Canadian Imperial Bank and Canadian Utilities Ltd, you can compare the effects of market volatilities on Canadian Imperial and Canadian Utilities 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 Canadian Imperial with a short position of Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Imperial and Canadian Utilities.

Diversification Opportunities for Canadian Imperial and Canadian Utilities

-0.29

Correlation Coefficient

Canadian Imperial  Canadian Utilities

Very good diversification

The 3 months correlation between Canadian and Canadian is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Canadian Utilities Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and Canadian Imperial 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 Canadian Imperial Bank are associated (or correlated) with Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Canadian Utilities go up and down completely randomly.

Pair Corralation between Canadian Imperial and Canadian Utilities

Assuming the 90 days trading horizon Canadian Imperial Bank is expected to generate 0.39 times more return on investment than Canadian Utilities. However, Canadian Imperial Bank is 2.57 times less risky than Canadian Utilities. It trades about 0.18 of its potential returns per unit of risk. Canadian Utilities Ltd is currently generating about -0.01 per unit of risk. If you would invest  2,471  in Canadian Imperial Bank on September 26, 2024 and sell it today you would earn a total of  79.00  from holding Canadian Imperial Bank or generate 3.2% return on investment over 90 days.

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

Canadian Imperial Bank  vs.  Canadian Utilities Ltd

Canadian Imperial Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Canadian Imperial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Utilities Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Canadian Imperial and Canadian Utilities

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

The idea behind Canadian Imperial Bank and Canadian Utilities Ltd 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.