Correlation Between CDN IMPERIAL and Highlight Communications

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

Diversification Opportunities for CDN IMPERIAL and Highlight Communications

0.72

Correlation Coefficient

CDN IMPERIAL  Highlight Communications

Poor diversification

The 3 months correlation between CDN and Highlight is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications 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 Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of CDN IMPERIAL i.e., CDN IMPERIAL and Highlight Communications go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and Highlight Communications

Assuming the 90 days trading horizon CDN IMPERIAL BANK is expected to under-perform the Highlight Communications. But the stock apears to be less risky and, when comparing its historical volatility, CDN IMPERIAL BANK is 5.95 times less risky than Highlight Communications. The stock trades about -0.05 of its potential returns per unit of risk. The Highlight Communications AG is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  116.00  in Highlight Communications AG on October 9, 2024 and sell it today you would earn a total of  23.00  from holding Highlight Communications AG or generate 19.83% return on investment over 90 days.

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

CDN IMPERIAL BANK  vs.  Highlight Communications AG

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 unveiled solid returns over the last few months and may actually be approaching a breakup point.

Highlight Communications

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Highlight Communications AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Highlight Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CDN IMPERIAL and Highlight Communications

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

The idea behind CDN IMPERIAL BANK and Highlight Communications AG 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.