Correlation Between Air Transport and Canadian Pacific

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

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

Diversification Opportunities for Air Transport and Canadian Pacific

-0.7

Correlation Coefficient

Air Transport  Canadian Pacific

Excellent diversification

The 3 months correlation between Air and Canadian is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services 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 Air Transport 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 Transport Services 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 Air Transport i.e., Air Transport and Canadian Pacific go up and down completely randomly.

Pair Corralation between Air Transport and Canadian Pacific

Given the investment horizon of 90 days Air Transport is expected to generate 2.89 times less return on investment than Canadian Pacific. But when comparing it to its historical volatility, Air Transport Services is 12.45 times less risky than Canadian Pacific. It trades about 0.51 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,302  in Canadian Pacific Railway on October 24, 2024 and sell it today you would earn a total of  180.00  from holding Canadian Pacific Railway or generate 2.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Air Transport Services  vs.  Canadian Pacific Railway

Air Transport Services

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Canadian Pacific Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Pacific Railway has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Air Transport and Canadian Pacific

The main advantage of trading using opposite Air Transport and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Transport 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 Air Transport Services 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.