Correlation Between CDN IMPERIAL and Algonquin Power

Can any of the company-specific risk be diversified away by investing in both CDN IMPERIAL and Algonquin Power 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 Algonquin Power 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 Algonquin Power Utilities, you can compare the effects of market volatilities on CDN IMPERIAL and Algonquin Power 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 Algonquin Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of CDN IMPERIAL and Algonquin Power.

Diversification Opportunities for CDN IMPERIAL and Algonquin Power

-0.67

Correlation Coefficient

CDN IMPERIAL  Algonquin Power

Excellent diversification

The 3 months correlation between CDN and Algonquin is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities 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 Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of CDN IMPERIAL i.e., CDN IMPERIAL and Algonquin Power go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and Algonquin Power

Assuming the 90 days trading horizon CDN IMPERIAL BANK is expected to generate 0.52 times more return on investment than Algonquin Power. However, CDN IMPERIAL BANK is 1.91 times less risky than Algonquin Power. It trades about 0.27 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.08 per unit of risk. If you would invest  4,241  in CDN IMPERIAL BANK on September 30, 2024 and sell it today you would earn a total of  1,802  from holding CDN IMPERIAL BANK or generate 42.49% return on investment over 90 days.

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

CDN IMPERIAL BANK  vs.  Algonquin Power Utilities

CDN IMPERIAL BANK

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CDN IMPERIAL BANK are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, CDN IMPERIAL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CDN IMPERIAL and Algonquin Power

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

The idea behind CDN IMPERIAL BANK and Algonquin Power Utilities 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.