Correlation Between Bank of America and Canadian Imperial

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

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

Diversification Opportunities for Bank of America and Canadian Imperial

-0.18

Correlation Coefficient

Bank of America  Canadian Imperial

Good diversification

The 3 months correlation between Bank and Canadian is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America 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 Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Canadian Imperial go up and down completely randomly.

Pair Corralation between Bank of America and Canadian Imperial

Assuming the 90 days trading horizon Bank of America is expected to generate 0.43 times more return on investment than Canadian Imperial. However, Bank of America is 2.34 times less risky than Canadian Imperial. It trades about 0.07 of its potential returns per unit of risk. Canadian Imperial Bank is currently generating about -0.12 per unit of risk. If you would invest  2,169  in Bank of America on December 29, 2024 and sell it today you would earn a total of  50.00  from holding Bank of America or generate 2.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  Canadian Imperial Bank

Bank of America

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Bank of America is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Canadian Imperial Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Imperial Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Bank of America and Canadian Imperial

The main advantage of trading using opposite Bank of America and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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 Bank of America 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.