Correlation Between Canadian Western and National Capital

Can any of the company-specific risk be diversified away by investing in both Canadian Western and National Capital 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 Canadian Western and National Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Canadian Western Bank and National Capital Bank, you can compare the effects of market volatilities on Canadian Western and National Capital 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 Canadian Western with a short position of National Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Western and National Capital.

Diversification Opportunities for Canadian Western and National Capital

-0.17

Correlation Coefficient

Canadian Western  National Capital

Good diversification

The 3 months correlation between Canadian and National is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Western Bank and National Capital Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Capital Bank and Canadian Western 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 Canadian Western Bank are associated (or correlated) with National Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Capital Bank has no effect on the direction of Canadian Western i.e., Canadian Western and National Capital go up and down completely randomly.

Pair Corralation between Canadian Western and National Capital

Assuming the 90 days horizon Canadian Western Bank is expected to generate 0.1 times more return on investment than National Capital. However, Canadian Western Bank is 9.89 times less risky than National Capital. It trades about -0.18 of its potential returns per unit of risk. National Capital Bank is currently generating about -0.15 per unit of risk. If you would invest  4,241  in Canadian Western Bank on September 21, 2024 and sell it today you would lose (316.00) from holding Canadian Western Bank or give up 7.45% of portfolio value over 90 days.

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

Canadian Western Bank  vs.  National Capital Bank

Canadian Western Bank

Risk-Adjusted Performance

0 of 100

Weak

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

National Capital Bank

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Western and National Capital

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

The idea behind Canadian Western Bank and National Capital Bank 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.