Correlation Between BetaPro SP and CIBC Equity

Can any of the company-specific risk be diversified away by investing in both BetaPro SP and CIBC Equity 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 BetaPro SP and CIBC Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BetaPro SP TSX and CIBC Equity Index, you can compare the effects of market volatilities on BetaPro SP and CIBC Equity 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 BetaPro SP with a short position of CIBC Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro SP and CIBC Equity.

Diversification Opportunities for BetaPro SP and CIBC Equity

0.75

Correlation Coefficient

BetaPro SP  CIBC Equity

Poor diversification

The 3 months correlation between BetaPro and CIBC is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro SP TSX and CIBC Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIBC Equity Index and BetaPro SP 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 BetaPro SP TSX are associated (or correlated) with CIBC Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIBC Equity Index has no effect on the direction of BetaPro SP i.e., BetaPro SP and CIBC Equity go up and down completely randomly.

Pair Corralation between BetaPro SP and CIBC Equity

Assuming the 90 days trading horizon BetaPro SP TSX is expected to generate 2.9 times more return on investment than CIBC Equity. However, BetaPro SP is 2.9 times more volatile than CIBC Equity Index. It trades about 0.11 of its potential returns per unit of risk. CIBC Equity Index is currently generating about 0.23 per unit of risk. If you would invest  2,188  in BetaPro SP TSX on April 24, 2025 and sell it today you would earn a total of  359.00  from holding BetaPro SP TSX or generate 16.41% return on investment over 90 days.

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

BetaPro SP TSX  vs.  CIBC Equity Index

BetaPro SP TSX

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro SP TSX are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BetaPro SP displayed solid returns over the last few months and may actually be approaching a breakup point.

CIBC Equity Index

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CIBC Equity Index are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, CIBC Equity displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BetaPro SP and CIBC Equity

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

The idea behind BetaPro SP TSX and CIBC Equity Index 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.