Correlation Between Canadian Imperial and Bank of Montreal

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

Diversification Opportunities for Canadian Imperial and Bank of Montreal

-0.13

Correlation Coefficient

Canadian Imperial  Bank of Montreal

Good diversification

The 3 months correlation between Canadian and Bank is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal 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 Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Bank of Montreal go up and down completely randomly.

Pair Corralation between Canadian Imperial and Bank of Montreal

Assuming the 90 days horizon Canadian Imperial Bank is expected to under-perform the Bank of Montreal. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Imperial Bank is 1.11 times less risky than Bank of Montreal. The stock trades about -0.04 of its potential returns per unit of risk. The Bank of Montreal is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  13,184  in Bank of Montreal on November 28, 2024 and sell it today you would earn a total of  1,735  from holding Bank of Montreal or generate 13.16% return on investment over 90 days.

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

Canadian Imperial Bank  vs.  Bank of Montreal

Canadian Imperial Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Imperial Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Imperial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Bank of Montreal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Montreal displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Imperial and Bank of Montreal

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

The idea behind Canadian Imperial Bank and Bank of Montreal 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.