Correlation Between Canadian Imperial and Royal Bank

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

Diversification Opportunities for Canadian Imperial and Royal Bank

0.93

Correlation Coefficient

Canadian Imperial  Royal Bank

Almost no diversification

The 3 months correlation between Canadian and Royal is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank 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 Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Royal Bank go up and down completely randomly.

Pair Corralation between Canadian Imperial and Royal Bank

Allowing for the 90-day total investment horizon Canadian Imperial Bank is expected to under-perform the Royal Bank. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Imperial Bank is 1.03 times less risky than Royal Bank. The stock trades about -0.12 of its potential returns per unit of risk. The Royal Bank of is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  11,950  in Royal Bank of on December 28, 2024 and sell it today you would lose (479.00) from holding Royal Bank of or give up 4.01% of portfolio value over 90 days.

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

Canadian Imperial Bank  vs.  Royal Bank of

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 latest uncertain performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Royal Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Royal Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Canadian Imperial and Royal Bank

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

The idea behind Canadian Imperial Bank and Royal Bank of 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..