Correlation Between Canadian Western and Great West

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

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

Diversification Opportunities for Canadian Western and Great West

0.96

Correlation Coefficient

Canadian Western  Great West

Almost no diversification

The 3 months correlation between Canadian and Great is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Western Bank and Great West Lifeco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifeco and Canadian Western 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 Western Bank are associated (or correlated) with Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifeco has no effect on the direction of Canadian Western i.e., Canadian Western and Great West go up and down completely randomly.

Pair Corralation between Canadian Western and Great West

Assuming the 90 days trading horizon Canadian Western Bank is expected to generate 1.02 times more return on investment than Great West. However, Canadian Western is 1.02 times more volatile than Great West Lifeco. It trades about 0.34 of its potential returns per unit of risk. Great West Lifeco is currently generating about 0.26 per unit of risk. If you would invest  5,109  in Canadian Western Bank on September 3, 2024 and sell it today you would earn a total of  912.00  from holding Canadian Western Bank or generate 17.85% return on investment over 90 days.

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

Canadian Western Bank  vs.  Great West Lifeco

Canadian Western Bank

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Western Bank are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Canadian Western displayed solid returns over the last few months and may actually be approaching a breakup point.

Great West Lifeco

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Lifeco are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Great West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canadian Western and Great West

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

The idea behind Canadian Western Bank and Great West Lifeco 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..