Correlation Between Canadian Natural and Canadian Imperial

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

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

Diversification Opportunities for Canadian Natural and Canadian Imperial

-0.61

Correlation Coefficient

Canadian Natural  Canadian Imperial

Excellent diversification

The 3 months correlation between Canadian and Canadian is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Canadian Imperial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Imperial Bank and Canadian Natural 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 Natural Resources are associated (or correlated) with Canadian Imperial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Imperial Bank has no effect on the direction of Canadian Natural i.e., Canadian Natural and Canadian Imperial go up and down completely randomly.

Pair Corralation between Canadian Natural and Canadian Imperial

Assuming the 90 days horizon Canadian Natural Resources is expected to under-perform the Canadian Imperial. In addition to that, Canadian Natural is 1.37 times more volatile than Canadian Imperial Bank. It trades about -0.04 of its total potential returns per unit of risk. Canadian Imperial Bank is currently generating about 0.21 per unit of volatility. If you would invest  5,340  in Canadian Imperial Bank on October 7, 2024 and sell it today you would earn a total of  786.00  from holding Canadian Imperial Bank or generate 14.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Canadian Natural Resources  vs.  Canadian Imperial Bank

Canadian Natural Res

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Natural is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian Imperial Bank

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Canadian Imperial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Natural and Canadian Imperial

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

The idea behind Canadian Natural Resources and Canadian Imperial 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.