Correlation Between Great West and Canadian Western

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

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

Diversification Opportunities for Great West and Canadian Western

0.96

Correlation Coefficient

Great West  Canadian Western

Almost no diversification

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

Pair Corralation between Great West and Canadian Western

Assuming the 90 days trading horizon Great West is expected to generate 1.32 times less return on investment than Canadian Western. But when comparing it to its historical volatility, Great West Lifeco is 1.02 times less risky than Canadian Western. It trades about 0.26 of its potential returns per unit of risk. Canadian Western Bank is currently generating about 0.34 of returns per unit of risk over similar time horizon. 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

Great West Lifeco  vs.  Canadian Western Bank

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.

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.

Pair Trading with Great West and Canadian Western

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

The idea behind Great West Lifeco and Canadian Western 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..