Correlation Between Canadian Imperial and Financial

Can any of the company-specific risk be diversified away by investing in both Canadian Imperial and 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 Canadian Imperial and Financial 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 Financial 15 Split, you can compare the effects of market volatilities on Canadian Imperial and 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 Canadian Imperial with a short position of Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Imperial and Financial.

Diversification Opportunities for Canadian Imperial and Financial

0.88

Correlation Coefficient

Canadian Imperial  Financial

Very poor diversification

The 3 months correlation between Canadian and Financial is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Financial 15 Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial 15 Split 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 Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial 15 Split has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Financial go up and down completely randomly.

Pair Corralation between Canadian Imperial and Financial

Assuming the 90 days trading horizon Canadian Imperial is expected to generate 2.54 times less return on investment than Financial. But when comparing it to its historical volatility, Canadian Imperial Bank is 1.06 times less risky than Financial. It trades about 0.13 of its potential returns per unit of risk. Financial 15 Split is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  1,019  in Financial 15 Split on September 28, 2024 and sell it today you would earn a total of  56.00  from holding Financial 15 Split or generate 5.5% return on investment over 90 days.

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

Canadian Imperial Bank  vs.  Financial 15 Split

Canadian Imperial Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 10 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Financial 15 Split

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Canadian Imperial and Financial

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

The idea behind Canadian Imperial Bank and Financial 15 Split 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.