Correlation Between GM and Canadian Imperial
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Canadian Imperial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Canadian Imperial Bank, you can compare the effects of market volatilities on GM 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 GM with a short position of Canadian Imperial. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Canadian Imperial.
Diversification Opportunities for GM and Canadian Imperial
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Canadian is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and Canadian Imperial go up and down completely randomly.
Pair Corralation between GM and Canadian Imperial
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.49 times more return on investment than Canadian Imperial. However, GM is 1.49 times more volatile than Canadian Imperial Bank. It trades about 0.11 of its potential returns per unit of risk. Canadian Imperial Bank is currently generating about 0.04 per unit of risk. If you would invest 4,394 in General Motors on February 10, 2024 and sell it today you would earn a total of 142.00 from holding General Motors or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Canadian Imperial Bank
Performance |
| Timeline |
| General Motors |
| Canadian Imperial Bank |
GM and Canadian Imperial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Canadian Imperial
The main advantage of trading using opposite GM and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| Canadian Imperial vs. Bank of Montreal | Canadian Imperial vs. Toronto Dominion Bank | Canadian Imperial vs. Royal Bank of | Canadian Imperial vs. Citigroup |
Check out your portfolio center.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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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