Correlation Between Canadian Western and Equitable

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

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

Diversification Opportunities for Canadian Western and Equitable

0.93

Correlation Coefficient

Canadian Western  Equitable

Almost no diversification

The 3 months correlation between Canadian and Equitable is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Western Bank and Equitable Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equitable Group and Canadian Western 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 Western Bank are associated (or correlated) with Equitable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equitable Group has no effect on the direction of Canadian Western i.e., Canadian Western and Equitable go up and down completely randomly.

Pair Corralation between Canadian Western and Equitable

Assuming the 90 days trading horizon Canadian Western is expected to generate 1.11 times less return on investment than Equitable. But when comparing it to its historical volatility, Canadian Western Bank is 1.36 times less risky than Equitable. It trades about 0.34 of its potential returns per unit of risk. Equitable Group is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  9,384  in Equitable Group on September 3, 2024 and sell it today you would earn a total of  1,866  from holding Equitable Group or generate 19.88% return on investment over 90 days.

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

Canadian Western Bank  vs.  Equitable Group

Canadian Western Bank

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Western Bank are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, Canadian Western displayed solid returns over the last few months and may actually be approaching a breakup point.

Equitable Group

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Equitable Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, Equitable displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Western and Equitable

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

The idea behind Canadian Western Bank and Equitable Group 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.