Correlation Between Royal Bank and Canadian Imperial

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

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

Diversification Opportunities for Royal Bank and Canadian Imperial

0.84

Correlation Coefficient

Royal Bank  Canadian Imperial

Very poor diversification

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

Pair Corralation between Royal Bank and Canadian Imperial

Allowing for the 90-day total investment horizon Royal Bank is expected to generate 1.56 times less return on investment than Canadian Imperial. In addition to that, Royal Bank is 1.44 times more volatile than Canadian Imperial Bank. It trades about 0.07 of its total potential returns per unit of risk. Canadian Imperial Bank is currently generating about 0.16 per unit of volatility. If you would invest  6,317  in Canadian Imperial Bank on August 30, 2024 and sell it today you would earn a total of  151.00  from holding Canadian Imperial Bank or generate 2.39% return on investment over 90 days.

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

Royal Bank of  vs.  Canadian Imperial Bank

Royal Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Royal Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 very unfluctuating primary indicators, Canadian Imperial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Royal Bank and Canadian Imperial

The main advantage of trading using opposite Royal Bank and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank 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 Royal Bank of 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.