Correlation Between Canadian Western and Western New

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

Diversification Opportunities for Canadian Western and Western New

0.36

Correlation Coefficient

Canadian Western  Western New

Weak diversification

The 3 months correlation between Canadian and Western is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Western Bank and Western New England in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western New England 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 Western New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western New England has no effect on the direction of Canadian Western i.e., Canadian Western and Western New go up and down completely randomly.

Pair Corralation between Canadian Western and Western New

Assuming the 90 days horizon Canadian Western Bank is expected to generate 2.39 times more return on investment than Western New. However, Canadian Western is 2.39 times more volatile than Western New England. It trades about 0.06 of its potential returns per unit of risk. Western New England is currently generating about 0.02 per unit of risk. If you would invest  1,773  in Canadian Western Bank on September 21, 2024 and sell it today you would earn a total of  2,152  from holding Canadian Western Bank or generate 121.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.2%
Values	Daily Returns

Canadian Western Bank  vs.  Western New England

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.

Western New England

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western New England are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Western New may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canadian Western and Western New

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

The idea behind Canadian Western Bank and Western New England 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.