Correlation Between Canadian Western and First Financial

Can any of the company-specific risk be diversified away by investing in both Canadian Western and First 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 Canadian Western and First Financial 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 First Financial, you can compare the effects of market volatilities on Canadian Western and First 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 Canadian Western with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Western and First Financial.

Diversification Opportunities for Canadian Western and First Financial

0.47

Correlation Coefficient

Canadian Western  First Financial

Very weak diversification

The 3 months correlation between Canadian and First is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Western Bank and First Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial 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 First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial has no effect on the direction of Canadian Western i.e., Canadian Western and First Financial go up and down completely randomly.

Pair Corralation between Canadian Western and First Financial

Assuming the 90 days horizon Canadian Western is expected to generate 29.18 times less return on investment than First Financial. But when comparing it to its historical volatility, Canadian Western Bank is 1.98 times less risky than First Financial. It trades about 0.0 of its potential returns per unit of risk. First Financial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,395  in First Financial on September 21, 2024 and sell it today you would earn a total of  203.00  from holding First Financial or generate 4.62% return on investment over 90 days.

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

Canadian Western Bank  vs.  First Financial

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.

First Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, First Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Canadian Western and First Financial

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

The idea behind Canadian Western Bank and First 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.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.