Correlation Between Canadian Imperial and US Financial
Can any of the company-specific risk be diversified away by investing in both Canadian Imperial and US Financial 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 US Financial 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 US Financial 15, you can compare the effects of market volatilities on Canadian Imperial and US Financial 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 US Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Imperial and US Financial.
Diversification Opportunities for Canadian Imperial and US Financial
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Canadian and FTU-PB is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and US Financial 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Financial 15 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 US Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Financial 15 has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and US Financial go up and down completely randomly.
Pair Corralation between Canadian Imperial and US Financial
Assuming the 90 days trading horizon Canadian Imperial is expected to generate 10.98 times less return on investment than US Financial. But when comparing it to its historical volatility, Canadian Imperial Bank is 12.96 times less risky than US Financial. It trades about 0.09 of its potential returns per unit of risk. US Financial 15 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 724.00 in US Financial 15 on August 29, 2024 and sell it today you would earn a total of 30.00 from holding US Financial 15 or generate 4.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian Imperial Bank vs. US Financial 15
Performance |
| Timeline |
| Canadian Imperial Bank |
| US Financial 15 |
Canadian Imperial and US Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian Imperial and US Financial
The main advantage of trading using opposite Canadian Imperial and US Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Imperial position performs unexpectedly, US Financial 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 US Financial will offset losses from the drop in US Financial's long position.The idea behind Canadian Imperial Bank and US Financial 15 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.| US Financial vs. North American Financial | US Financial vs. Prime Dividend Corp | US Financial vs. Canadian Life Companies | US Financial vs. Financial 15 Split |
Check out your portfolio center.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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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