Correlation Between Wells Fargo and Canadian Imperial

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

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

Diversification Opportunities for Wells Fargo and Canadian Imperial

-0.41

Correlation Coefficient

Wells Fargo  Canadian Imperial

Very good diversification

The 3 months correlation between Wells and Canadian is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo 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 Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and Canadian Imperial go up and down completely randomly.

Pair Corralation between Wells Fargo and Canadian Imperial

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.18 times more return on investment than Canadian Imperial. However, Wells Fargo is 1.18 times more volatile than Canadian Imperial Bank. It trades about 0.01 of its potential returns per unit of risk. Canadian Imperial Bank is currently generating about -0.08 per unit of risk. If you would invest  7,580  in Wells Fargo on November 28, 2024 and sell it today you would earn a total of  20.00  from holding Wells Fargo or generate 0.26% return on investment over 90 days.

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

Wells Fargo  vs.  Canadian Imperial Bank

Wells Fargo

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Wells Fargo is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 very healthy primary indicators, Canadian Imperial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Wells Fargo and Canadian Imperial

The main advantage of trading using opposite Wells Fargo and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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 Wells Fargo 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.