Correlation Between Canadian Imperial and East West

Can any of the company-specific risk be diversified away by investing in both Canadian Imperial and East West 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 East West 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 East West Bancorp, you can compare the effects of market volatilities on Canadian Imperial and East West 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 East West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Imperial and East West.

Diversification Opportunities for Canadian Imperial and East West

0.83

Correlation Coefficient

Canadian Imperial  East West

Very poor diversification

The 3 months correlation between Canadian and East is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Imperial Bank and East West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Bancorp 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 East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Bancorp has no effect on the direction of Canadian Imperial i.e., Canadian Imperial and East West go up and down completely randomly.

Pair Corralation between Canadian Imperial and East West

Allowing for the 90-day total investment horizon Canadian Imperial Bank is expected to under-perform the East West. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Imperial Bank is 1.74 times less risky than East West. The stock trades about -0.21 of its potential returns per unit of risk. The East West Bancorp is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  7,691  in East West Bancorp on January 24, 2024 and sell it today you would lose (244.00) from holding East West Bancorp or give up 3.17% of portfolio value over 90 days.

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

Canadian Imperial Bank  vs.  East West Bancorp

Canadian Imperial Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Canadian Imperial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

East West Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Canadian Imperial and East West

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

The idea behind Canadian Imperial Bank and East West Bancorp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.