Correlation Between Dominion Lending and Canadian Imperial

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

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

Diversification Opportunities for Dominion Lending and Canadian Imperial

0.84

Correlation Coefficient

Dominion Lending  Canadian Imperial

Very poor diversification

The 3 months correlation between Dominion and Canadian is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Lending Centres 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 Dominion Lending 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 Dominion Lending Centres 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 Dominion Lending i.e., Dominion Lending and Canadian Imperial go up and down completely randomly.

Pair Corralation between Dominion Lending and Canadian Imperial

Assuming the 90 days trading horizon Dominion Lending Centres is expected to under-perform the Canadian Imperial. In addition to that, Dominion Lending is 5.03 times more volatile than Canadian Imperial Bank. It trades about -0.02 of its total potential returns per unit of risk. Canadian Imperial Bank is currently generating about -0.02 per unit of volatility. If you would invest  2,510  in Canadian Imperial Bank on October 22, 2024 and sell it today you would lose (3.00) from holding Canadian Imperial Bank or give up 0.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Dominion Lending Centres  vs.  Canadian Imperial Bank

Dominion Lending Centres

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dominion Lending Centres are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dominion Lending displayed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Imperial Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Canadian Imperial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dominion Lending and Canadian Imperial

The main advantage of trading using opposite Dominion Lending and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominion Lending 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 Dominion Lending Centres 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.