Correlation Between Vanguard FTSE and CIBC Canadian

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

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

Diversification Opportunities for Vanguard FTSE and CIBC Canadian

1.0

Correlation Coefficient

Vanguard FTSE  CIBC Canadian

No risk reduction

The 3 months correlation between Vanguard and CIBC is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Canada and CIBC Canadian Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIBC Canadian Equity and Vanguard FTSE 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 Vanguard FTSE Canada are associated (or correlated) with CIBC Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIBC Canadian Equity has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and CIBC Canadian go up and down completely randomly.

Pair Corralation between Vanguard FTSE and CIBC Canadian

Assuming the 90 days trading horizon Vanguard FTSE Canada is expected to generate 0.97 times more return on investment than CIBC Canadian. However, Vanguard FTSE Canada is 1.03 times less risky than CIBC Canadian. It trades about 0.1 of its potential returns per unit of risk. CIBC Canadian Equity is currently generating about 0.1 per unit of risk. If you would invest  3,749  in Vanguard FTSE Canada on December 1, 2024 and sell it today you would earn a total of  1,474  from holding Vanguard FTSE Canada or generate 39.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

Vanguard FTSE Canada  vs.  CIBC Canadian Equity

Vanguard FTSE Canada

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard FTSE Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CIBC Canadian Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days CIBC Canadian Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, CIBC Canadian is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard FTSE and CIBC Canadian

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

The idea behind Vanguard FTSE Canada and CIBC Canadian Equity 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.