Correlation Between Canadian Imperial and Hammond Power

Can any of the company-specific risk be diversified away by investing in both Canadian Imperial and Hammond Power 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 Hammond Power 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 Hammond Power Solutions, you can compare the effects of market volatilities on Canadian Imperial and Hammond Power 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 Hammond Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Imperial and Hammond Power.

Diversification Opportunities for Canadian Imperial and Hammond Power

-0.54

Correlation Coefficient

Canadian Imperial  Hammond Power

Excellent diversification

The 3 months correlation between Canadian and Hammond is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Hammond Power Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Power Solutions 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 Hammond Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Power Solutions has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Hammond Power go up and down completely randomly.

Pair Corralation between Canadian Imperial and Hammond Power

Assuming the 90 days horizon Canadian Imperial is expected to generate 1.45 times less return on investment than Hammond Power. But when comparing it to its historical volatility, Canadian Imperial Bank is 3.39 times less risky than Hammond Power. It trades about 0.16 of its potential returns per unit of risk. Hammond Power Solutions is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,004  in Hammond Power Solutions on September 25, 2024 and sell it today you would earn a total of  4,676  from holding Hammond Power Solutions or generate 58.42% return on investment over 90 days.

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

Canadian Imperial Bank  vs.  Hammond Power Solutions

Canadian Imperial Bank

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canadian Imperial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hammond Power Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hammond Power Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Hammond Power 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 Hammond Power

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

The idea behind Canadian Imperial Bank and Hammond Power Solutions 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.