Correlation Between CDN IMPERIAL and Webster Financial

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

Diversification Opportunities for CDN IMPERIAL and Webster Financial

0.03

Correlation Coefficient

CDN IMPERIAL  Webster Financial

Significant diversification

The 3 months correlation between CDN and Webster is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial 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 Webster Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webster Financial has no effect on the direction of CDN IMPERIAL i.e., CDN IMPERIAL and Webster Financial go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and Webster Financial

Assuming the 90 days trading horizon CDN IMPERIAL BANK is expected to generate 0.78 times more return on investment than Webster Financial. However, CDN IMPERIAL BANK is 1.27 times less risky than Webster Financial. It trades about -0.05 of its potential returns per unit of risk. Webster Financial is currently generating about -0.08 per unit of risk. If you would invest  6,011  in CDN IMPERIAL BANK on December 1, 2024 and sell it today you would lose (259.00) from holding CDN IMPERIAL BANK or give up 4.31% of portfolio value over 90 days.

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

CDN IMPERIAL BANK  vs.  Webster Financial

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 comparatively stable forward indicators, CDN IMPERIAL is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Webster Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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 Webster Financial

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

The idea behind CDN IMPERIAL BANK and Webster Financial 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 Transaction History module to view history of all your transactions and understand their impact on performance.