Correlation Between Citizens Financial and Canadian Western

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

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

Diversification Opportunities for Citizens Financial and Canadian Western

0.59

Correlation Coefficient

Citizens Financial  Canadian Western

Very weak diversification

The 3 months correlation between Citizens and Canadian is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Corp and Canadian Western Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Western Bank and Citizens Financial 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 Citizens Financial Corp are associated (or correlated) with Canadian Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Western Bank has no effect on the direction of Citizens Financial i.e., Citizens Financial and Canadian Western go up and down completely randomly.

Pair Corralation between Citizens Financial and Canadian Western

Given the investment horizon of 90 days Citizens Financial is expected to generate 2.17 times less return on investment than Canadian Western. But when comparing it to its historical volatility, Citizens Financial Corp is 1.5 times less risky than Canadian Western. It trades about 0.04 of its potential returns per unit of risk. Canadian Western Bank is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,846  in Canadian Western Bank on October 4, 2024 and sell it today you would earn a total of  2,246  from holding Canadian Western Bank or generate 121.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	87.41%
Values	Daily Returns

Citizens Financial Corp  vs.  Canadian Western Bank

Citizens Financial Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Citizens Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Western Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Western Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Citizens Financial and Canadian Western

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

The idea behind Citizens Financial Corp and Canadian Western 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.