Correlation Between Canadian Pacific and Autocanada

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

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

Diversification Opportunities for Canadian Pacific and Autocanada

-0.57

Correlation Coefficient

Canadian Pacific  Autocanada

Excellent diversification

The 3 months correlation between Canadian and Autocanada is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Autocanada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autocanada and Canadian Pacific 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 Pacific Railway are associated (or correlated) with Autocanada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autocanada has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Autocanada go up and down completely randomly.

Pair Corralation between Canadian Pacific and Autocanada

Assuming the 90 days horizon Canadian Pacific Railway is expected to generate 1.05 times more return on investment than Autocanada. However, Canadian Pacific is 1.05 times more volatile than Autocanada. It trades about -0.02 of its potential returns per unit of risk. Autocanada is currently generating about -0.1 per unit of risk. If you would invest  10,670  in Canadian Pacific Railway on September 15, 2024 and sell it today you would lose (81.00) from holding Canadian Pacific Railway or give up 0.76% of portfolio value over 90 days.

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

Canadian Pacific Railway  vs.  Autocanada

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. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Autocanada

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Autocanada are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Autocanada displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Pacific and Autocanada

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

The idea behind Canadian Pacific Railway and Autocanada 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.