Correlation Between Canadian Imperial and Premium Income

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

Diversification Opportunities for Canadian Imperial and Premium Income

-0.34

Correlation Coefficient

Canadian Imperial  Premium Income

Very good diversification

The 3 months correlation between Canadian and Premium is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Income 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 Premium Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Income has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Premium Income go up and down completely randomly.

Pair Corralation between Canadian Imperial and Premium Income

Assuming the 90 days horizon Canadian Imperial Bank is expected to generate 0.73 times more return on investment than Premium Income. However, Canadian Imperial Bank is 1.36 times less risky than Premium Income. It trades about 0.1 of its potential returns per unit of risk. Premium Income is currently generating about -0.07 per unit of risk. If you would invest  8,642  in Canadian Imperial Bank on October 24, 2024 and sell it today you would earn a total of  455.00  from holding Canadian Imperial Bank or generate 5.26% 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.  Premium Income

Canadian Imperial Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

Premium Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Premium Income is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Canadian Imperial and Premium Income

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

The idea behind Canadian Imperial Bank and Premium Income 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.