Correlation Between Canadian Imperial and Signature Resources

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

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

Diversification Opportunities for Canadian Imperial and Signature Resources

0.45

Correlation Coefficient

Canadian Imperial  Signature Resources

Very weak diversification

The 3 months correlation between Canadian and Signature is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Signature Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signature Resources and Canadian 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 Canadian Imperial Bank are associated (or correlated) with Signature Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signature Resources has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Signature Resources go up and down completely randomly.

Pair Corralation between Canadian Imperial and Signature Resources

Assuming the 90 days trading horizon Canadian Imperial is expected to generate 37.41 times less return on investment than Signature Resources. But when comparing it to its historical volatility, Canadian Imperial Bank is 49.06 times less risky than Signature Resources. It trades about 0.06 of its potential returns per unit of risk. Signature Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4.50  in Signature Resources on December 2, 2024 and sell it today you would lose (0.50) from holding Signature Resources or give up 11.11% of portfolio value over 90 days.

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

Canadian Imperial Bank  vs.  Signature Resources

Canadian Imperial Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Canadian Imperial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Signature Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Signature Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Signature Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Imperial and Signature Resources

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

The idea behind Canadian Imperial Bank and Signature Resources 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.