Correlation Between Diamond Estates and Canadian Imperial

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

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

Diversification Opportunities for Diamond Estates and Canadian Imperial

0.26

Correlation Coefficient

Diamond Estates  Canadian Imperial

Modest diversification

The 3 months correlation between Diamond and Canadian is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Estates Wines 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 Diamond Estates 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 Diamond Estates Wines 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 Diamond Estates i.e., Diamond Estates and Canadian Imperial go up and down completely randomly.

Pair Corralation between Diamond Estates and Canadian Imperial

Assuming the 90 days horizon Diamond Estates Wines is expected to under-perform the Canadian Imperial. In addition to that, Diamond Estates is 9.61 times more volatile than Canadian Imperial Bank. It trades about -0.03 of its total potential returns per unit of risk. Canadian Imperial Bank is currently generating about -0.01 per unit of volatility. If you would invest  2,525  in Canadian Imperial Bank on December 30, 2024 and sell it today you would lose (6.00) from holding Canadian Imperial Bank or give up 0.24% of portfolio value over 90 days.

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

Diamond Estates Wines  vs.  Canadian Imperial Bank

Diamond Estates Wines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Estates Wines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Diamond Estates is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 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 Diamond Estates and Canadian Imperial

The main advantage of trading using opposite Diamond Estates and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Estates 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 Diamond Estates Wines 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.