Correlation Between Air Canada and Canadian Life

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

By analyzing existing cross correlation between Air Canada and Canadian Life Companies, you can compare the effects of market volatilities on Air Canada and Canadian Life 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 Air Canada with a short position of Canadian Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Canada and Canadian Life.

Diversification Opportunities for Air Canada and Canadian Life

0.46

Correlation Coefficient

Air Canada  Canadian Life

Very weak diversification

The 3 months correlation between Air and Canadian is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Canadian Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Life Companies and Air Canada 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 Air Canada are associated (or correlated) with Canadian Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Life Companies has no effect on the direction of Air Canada i.e., Air Canada and Canadian Life go up and down completely randomly.

Pair Corralation between Air Canada and Canadian Life

Assuming the 90 days horizon Air Canada is expected to under-perform the Canadian Life. But the stock apears to be less risky and, when comparing its historical volatility, Air Canada is 1.21 times less risky than Canadian Life. The stock trades about -0.39 of its potential returns per unit of risk. The Canadian Life Companies is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  667.00  in Canadian Life Companies on December 29, 2024 and sell it today you would lose (56.00) from holding Canadian Life Companies or give up 8.4% of portfolio value over 90 days.

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

Air Canada  vs.  Canadian Life Companies

Air Canada

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Canadian Life Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Life Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Air Canada and Canadian Life

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

The idea behind Air Canada and Canadian Life Companies 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.