Correlation Between Canadian Western and Laurentian Bank
Can any of the company-specific risk be diversified away by investing in both Canadian Western and Laurentian Bank 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 Laurentian Bank 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 Laurentian Bank, you can compare the effects of market volatilities on Canadian Western and Laurentian Bank 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 Laurentian Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Western and Laurentian Bank.
Diversification Opportunities for Canadian Western and Laurentian Bank
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Canadian and Laurentian is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Western Bank and Laurentian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laurentian Bank 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 Laurentian Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laurentian Bank has no effect on the direction of Canadian Western i.e., Canadian Western and Laurentian Bank go up and down completely randomly.
Pair Corralation between Canadian Western and Laurentian Bank
Assuming the 90 days trading horizon Canadian Western Bank is expected to generate 1.71 times more return on investment than Laurentian Bank. However, Canadian Western is 1.71 times more volatile than Laurentian Bank. It trades about 0.07 of its potential returns per unit of risk. Laurentian Bank is currently generating about 0.01 per unit of risk. If you would invest 2,180 in Canadian Western Bank on August 24, 2024 and sell it today you would earn a total of 3,811 from holding Canadian Western Bank or generate 174.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian Western Bank vs. Laurentian Bank
Performance |
| Timeline |
| Canadian Western Bank |
| Laurentian Bank |
Canadian Western and Laurentian Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian Western and Laurentian Bank
The main advantage of trading using opposite Canadian Western and Laurentian Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Western position performs unexpectedly, Laurentian Bank 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 Laurentian Bank will offset losses from the drop in Laurentian Bank's long position.| Canadian Western vs. Laurentian Bank | Canadian Western vs. National Bank of | Canadian Western vs. Great West Lifeco | Canadian Western vs. CI Financial Corp |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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