Correlation Between Canadian Imperial and Sumitomo Mitsui

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

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

Diversification Opportunities for Canadian Imperial and Sumitomo Mitsui

0.92

Correlation Coefficient

Canadian Imperial  Sumitomo Mitsui

Almost no diversification

The 3 months correlation between Canadian and Sumitomo is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and Sumitomo Mitsui Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Financial and Canadian Imperial 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 Canadian Imperial Bank are associated (or correlated) with Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Financial has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Canadian Imperial and Sumitomo Mitsui

Allowing for the 90-day total investment horizon Canadian Imperial Bank is expected to under-perform the Sumitomo Mitsui. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Imperial Bank is 1.4 times less risky than Sumitomo Mitsui. The stock trades about -0.28 of its potential returns per unit of risk. The Sumitomo Mitsui Financial is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,143  in Sumitomo Mitsui Financial on January 29, 2024 and sell it today you would lose (21.00) from holding Sumitomo Mitsui Financial or give up 1.84% of portfolio value over 90 days.

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

Canadian Imperial Bank  vs.  Sumitomo Mitsui Financial

Canadian Imperial Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 6 (%) 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.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Sumitomo Mitsui may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Canadian Imperial and Sumitomo Mitsui

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

The idea behind Canadian Imperial Bank and Sumitomo Mitsui Financial 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.