Correlation Between IGM Financial and Canadian Imperial

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

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

Diversification Opportunities for IGM Financial and Canadian Imperial

0.92

Correlation Coefficient

IGM Financial  Canadian Imperial

Almost no diversification

The 3 months correlation between IGM and Canadian is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding IGM Financial and Canadian Imperial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Imperial Bank and IGM Financial 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 IGM Financial are associated (or correlated) with Canadian Imperial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Imperial Bank has no effect on the direction of IGM Financial i.e., IGM Financial and Canadian Imperial go up and down completely randomly.

Pair Corralation between IGM Financial and Canadian Imperial

Assuming the 90 days trading horizon IGM Financial is expected to generate 3.13 times more return on investment than Canadian Imperial. However, IGM Financial is 3.13 times more volatile than Canadian Imperial Bank. It trades about 0.38 of its potential returns per unit of risk. Canadian Imperial Bank is currently generating about 0.16 per unit of risk. If you would invest  3,859  in IGM Financial on September 15, 2024 and sell it today you would earn a total of  901.00  from holding IGM Financial or generate 23.35% return on investment over 90 days.

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

IGM Financial  vs.  Canadian Imperial Bank

IGM Financial

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, IGM Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Imperial Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 12 (%) 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.

Pair Trading with IGM Financial and Canadian Imperial

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

The idea behind IGM Financial and Canadian Imperial Bank 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.