Correlation Between Barnes and Canadian Pacific

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

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

Diversification Opportunities for Barnes and Canadian Pacific

-0.02

Correlation Coefficient

Barnes  Canadian Pacific

Good diversification

The 3 months correlation between Barnes and Canadian is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Barnes 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 Barnes 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 Barnes 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 Barnes i.e., Barnes and Canadian Pacific go up and down completely randomly.

Pair Corralation between Barnes and Canadian Pacific

Taking into account the 90-day investment horizon Barnes is expected to generate 1.83 times less return on investment than Canadian Pacific. But when comparing it to its historical volatility, Barnes Group is 24.12 times less risky than Canadian Pacific. It trades about 0.34 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,196  in Canadian Pacific Railway on December 28, 2024 and sell it today you would earn a total of  132.00  from holding Canadian Pacific Railway or generate 1.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	30.0%
Values	Daily Returns

Barnes Group  vs.  Canadian Pacific Railway

Barnes Group

Risk-Adjusted Performance

Strong

Over the last 90 days Barnes Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Barnes is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 Barnes and Canadian Pacific

The main advantage of trading using opposite Barnes and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barnes 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 Barnes 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.