Correlation Between Canadian National and Loblaw Companies

Can any of the company-specific risk be diversified away by investing in both Canadian National and Loblaw Companies 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 Loblaw Companies 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 Loblaw Companies Limited, you can compare the effects of market volatilities on Canadian National and Loblaw Companies 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 Loblaw Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian National and Loblaw Companies.

Diversification Opportunities for Canadian National and Loblaw Companies

0.05

Correlation Coefficient

Canadian National  Loblaw Companies

Significant diversification

The 3 months correlation between Canadian and Loblaw is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies 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 Loblaw Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loblaw Companies has no effect on the direction of Canadian National i.e., Canadian National and Loblaw Companies go up and down completely randomly.

Pair Corralation between Canadian National and Loblaw Companies

Assuming the 90 days trading horizon Canadian National Railway is expected to under-perform the Loblaw Companies. In addition to that, Canadian National is 1.33 times more volatile than Loblaw Companies Limited. It trades about -0.1 of its total potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.15 per unit of volatility. If you would invest  18,275  in Loblaw Companies Limited on December 1, 2024 and sell it today you would earn a total of  668.00  from holding Loblaw Companies Limited or generate 3.66% return on investment over 90 days.

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

Canadian National Railway  vs.  Loblaw Companies Limited

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. In spite of very healthy basic indicators, Canadian National is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Loblaw Companies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Loblaw Companies is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Canadian National and Loblaw Companies

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

The idea behind Canadian National Railway and Loblaw Companies Limited 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.