Correlation Between National Bank and CDN IMPERIAL

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

By analyzing existing cross correlation between National Bank Holdings and CDN IMPERIAL BANK, you can compare the effects of market volatilities on National Bank and CDN 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 CDN IMPERIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and CDN IMPERIAL.

Diversification Opportunities for National Bank and CDN IMPERIAL

0.91

Correlation Coefficient

National Bank  CDN IMPERIAL

Almost no diversification

The 3 months correlation between National and CDN is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and CDN IMPERIAL BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDN 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 Holdings are associated (or correlated) with CDN IMPERIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDN IMPERIAL BANK has no effect on the direction of National Bank i.e., National Bank and CDN IMPERIAL go up and down completely randomly.

Pair Corralation between National Bank and CDN IMPERIAL

Assuming the 90 days horizon National Bank Holdings is expected to generate 2.8 times more return on investment than CDN IMPERIAL. However, National Bank is 2.8 times more volatile than CDN IMPERIAL BANK. It trades about 0.11 of its potential returns per unit of risk. CDN IMPERIAL BANK is currently generating about 0.24 per unit of risk. If you would invest  3,696  in National Bank Holdings on September 19, 2024 and sell it today you would earn a total of  624.00  from holding National Bank Holdings or generate 16.88% 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 Holdings  vs.  CDN IMPERIAL BANK

National Bank Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

CDN IMPERIAL BANK

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CDN IMPERIAL BANK are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, CDN IMPERIAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and CDN IMPERIAL

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

The idea behind National Bank Holdings and CDN 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.