Correlation Between National Bank and Canadian Imperial

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

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

Diversification Opportunities for National Bank and Canadian Imperial

0.93

Correlation Coefficient

National Bank  Canadian Imperial

Almost no diversification

The 3 months correlation between National and Canadian is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of 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 National Bank 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 National Bank of 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 National Bank i.e., National Bank and Canadian Imperial go up and down completely randomly.

Pair Corralation between National Bank and Canadian Imperial

Assuming the 90 days horizon National Bank is expected to generate 1.31 times less return on investment than Canadian Imperial. But when comparing it to its historical volatility, National Bank of is 1.23 times less risky than Canadian Imperial. It trades about 0.32 of its potential returns per unit of risk. Canadian Imperial Bank is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  7,762  in Canadian Imperial Bank on August 31, 2024 and sell it today you would earn a total of  1,280  from holding Canadian Imperial Bank or generate 16.49% return on investment over 90 days.

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

National Bank of  vs.  Canadian Imperial Bank

National Bank

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Canadian Imperial Bank

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canadian Imperial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and Canadian Imperial

The main advantage of trading using opposite National Bank and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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 National Bank of 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.