Correlation Between CIBC Active and IShares Core

Can any of the company-specific risk be diversified away by investing in both CIBC Active and IShares Core 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 CIBC Active and IShares Core into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CIBC Active Investment and iShares Core Canadian, you can compare the effects of market volatilities on CIBC Active and IShares Core 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 CIBC Active with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of CIBC Active and IShares Core.

Diversification Opportunities for CIBC Active and IShares Core

0.85

Correlation Coefficient

CIBC Active  IShares Core

Very poor diversification

The 3 months correlation between CIBC and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding CIBC Active Investment and iShares Core Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core Canadian and CIBC Active 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 CIBC Active Investment are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core Canadian has no effect on the direction of CIBC Active i.e., CIBC Active and IShares Core go up and down completely randomly.

Pair Corralation between CIBC Active and IShares Core

Assuming the 90 days trading horizon CIBC Active is expected to generate 6.25 times less return on investment than IShares Core. In addition to that, CIBC Active is 1.01 times more volatile than iShares Core Canadian. It trades about 0.01 of its total potential returns per unit of risk. iShares Core Canadian is currently generating about 0.08 per unit of volatility. If you would invest  2,003  in iShares Core Canadian on September 14, 2024 and sell it today you would earn a total of  28.00  from holding iShares Core Canadian or generate 1.4% return on investment over 90 days.

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

CIBC Active Investment  vs.  iShares Core Canadian

CIBC Active Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CIBC Active Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, CIBC Active is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Core Canadian

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Canadian are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CIBC Active and IShares Core

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

The idea behind CIBC Active Investment and iShares Core Canadian 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.