Correlation Between High-yield Municipal and Canadian Imperial

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

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

Diversification Opportunities for High-yield Municipal and Canadian Imperial

0.51

Correlation Coefficient

High-yield Municipal  Canadian Imperial

Very weak diversification

The 3 months correlation between High-yield and Canadian is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund 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 High-yield Municipal 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 High Yield Municipal Fund 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 High-yield Municipal i.e., High-yield Municipal and Canadian Imperial go up and down completely randomly.

Pair Corralation between High-yield Municipal and Canadian Imperial

Assuming the 90 days horizon High Yield Municipal Fund is expected to under-perform the Canadian Imperial. But the mutual fund apears to be less risky and, when comparing its historical volatility, High Yield Municipal Fund is 6.37 times less risky than Canadian Imperial. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Canadian Imperial Bank is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,783  in Canadian Imperial Bank on March 4, 2024 and sell it today you would earn a total of  171.00  from holding Canadian Imperial Bank or generate 3.58% return on investment over 90 days.

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

High Yield Municipal Fund  vs.  Canadian Imperial Bank

High Yield Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Yield Municipal Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, High-yield Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Canadian Imperial Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 High-yield Municipal and Canadian Imperial

The main advantage of trading using opposite High-yield Municipal and Canadian Imperial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High-yield Municipal 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 High Yield Municipal Fund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.