Correlation Between CDN IMPERIAL and ECHO INVESTMENT

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

By analyzing existing cross correlation between CDN IMPERIAL BANK and ECHO INVESTMENT ZY, you can compare the effects of market volatilities on CDN IMPERIAL and ECHO INVESTMENT 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 CDN IMPERIAL with a short position of ECHO INVESTMENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of CDN IMPERIAL and ECHO INVESTMENT.

Diversification Opportunities for CDN IMPERIAL and ECHO INVESTMENT

0.73

Correlation Coefficient

CDN IMPERIAL  ECHO INVESTMENT

Poor diversification

The 3 months correlation between CDN and ECHO is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK and ECHO INVESTMENT ZY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECHO INVESTMENT ZY and CDN 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 CDN IMPERIAL BANK are associated (or correlated) with ECHO INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECHO INVESTMENT ZY has no effect on the direction of CDN IMPERIAL i.e., CDN IMPERIAL and ECHO INVESTMENT go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and ECHO INVESTMENT

Assuming the 90 days trading horizon CDN IMPERIAL BANK is expected to under-perform the ECHO INVESTMENT. But the stock apears to be less risky and, when comparing its historical volatility, CDN IMPERIAL BANK is 1.02 times less risky than ECHO INVESTMENT. The stock trades about -0.12 of its potential returns per unit of risk. The ECHO INVESTMENT ZY is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  107.00  in ECHO INVESTMENT ZY on December 27, 2024 and sell it today you would lose (7.00) from holding ECHO INVESTMENT ZY or give up 6.54% of portfolio value over 90 days.

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

CDN IMPERIAL BANK  vs.  ECHO INVESTMENT ZY

CDN IMPERIAL BANK

Risk-Adjusted Performance

Very Weak

Over the last 90 days CDN IMPERIAL BANK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

ECHO INVESTMENT ZY

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECHO INVESTMENT ZY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ECHO INVESTMENT is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CDN IMPERIAL and ECHO INVESTMENT

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

The idea behind CDN IMPERIAL BANK and ECHO INVESTMENT ZY 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..