Correlation Between Canadian National and United Parcel

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

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

Diversification Opportunities for Canadian National and United Parcel

0.61

Correlation Coefficient

Canadian National  United Parcel

Poor diversification

The 3 months correlation between Canadian and United is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service and Canadian National 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 Canadian National Railway are associated (or correlated) with United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Canadian National i.e., Canadian National and United Parcel go up and down completely randomly.

Pair Corralation between Canadian National and United Parcel

Considering the 90-day investment horizon Canadian National Railway is expected to under-perform the United Parcel. In addition to that, Canadian National is 1.83 times more volatile than United Parcel Service. It trades about -0.09 of its total potential returns per unit of risk. United Parcel Service is currently generating about 0.25 per unit of volatility. If you would invest  11,328  in United Parcel Service on December 1, 2024 and sell it today you would earn a total of  575.00  from holding United Parcel Service or generate 5.08% return on investment over 90 days.

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

Canadian National Railway  vs.  United Parcel Service

Canadian National Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

United Parcel Service

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Canadian National and United Parcel

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

The idea behind Canadian National Railway and United Parcel Service 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.