Correlation Between Alaska Air and Canadian Pacific

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

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

Diversification Opportunities for Alaska Air and Canadian Pacific

0.41

Correlation Coefficient

Alaska Air  Canadian Pacific

Very weak diversification

The 3 months correlation between Alaska and Canadian is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Canadian Pacific Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Pacific Railway and Alaska Air 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 Alaska Air Group are associated (or correlated) with Canadian Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Pacific Railway has no effect on the direction of Alaska Air i.e., Alaska Air and Canadian Pacific go up and down completely randomly.

Pair Corralation between Alaska Air and Canadian Pacific

Considering the 90-day investment horizon Alaska Air Group is expected to generate 1.72 times more return on investment than Canadian Pacific. However, Alaska Air is 1.72 times more volatile than Canadian Pacific Railway. It trades about 0.19 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about 0.03 per unit of risk. If you would invest  5,316  in Alaska Air Group on December 1, 2024 and sell it today you would earn a total of  1,791  from holding Alaska Air Group or generate 33.69% return on investment over 90 days.

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

Alaska Air Group  vs.  Canadian Pacific Railway

Alaska Air Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Alaska Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Pacific Railway

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Pacific Railway are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Canadian Pacific is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Alaska Air and Canadian Pacific

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

The idea behind Alaska Air Group and Canadian Pacific Railway 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.