Correlation Between Canadian Pacific and Magna International

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

Diversification Opportunities for Canadian Pacific and Magna International

0.24

Correlation Coefficient

Canadian Pacific  Magna International

Modest diversification

The 3 months correlation between Canadian and Magna is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International 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 Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Magna International go up and down completely randomly.

Pair Corralation between Canadian Pacific and Magna International

Assuming the 90 days horizon Canadian Pacific Railway is expected to generate 0.76 times more return on investment than Magna International. However, Canadian Pacific Railway is 1.32 times less risky than Magna International. It trades about -0.03 of its potential returns per unit of risk. Magna International is currently generating about -0.13 per unit of risk. If you would invest  10,316  in Canadian Pacific Railway on December 30, 2024 and sell it today you would lose (376.00) from holding Canadian Pacific Railway or give up 3.64% of portfolio value over 90 days.

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

Canadian Pacific Railway  vs.  Magna International

Canadian Pacific Railway

Risk-Adjusted Performance

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

Magna International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Magna International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Canadian Pacific and Magna International

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

The idea behind Canadian Pacific Railway and Magna International 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.