Correlation Between Canadian Pacific and Alstom SA

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

Diversification Opportunities for Canadian Pacific and Alstom SA

-0.45

Correlation Coefficient

Canadian Pacific  Alstom SA

Very good diversification

The 3 months correlation between Canadian and Alstom is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA 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 Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Alstom SA go up and down completely randomly.

Pair Corralation between Canadian Pacific and Alstom SA

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the Alstom SA. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Pacific Railway is 1.97 times less risky than Alstom SA. The stock trades about -0.02 of its potential returns per unit of risk. The Alstom SA is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,320  in Alstom SA on December 29, 2024 and sell it today you would lose (80.00) from holding Alstom SA or give up 3.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Canadian Pacific Railway  vs.  Alstom SA

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. 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.

Alstom SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alstom SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Alstom SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Canadian Pacific and Alstom SA

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

The idea behind Canadian Pacific Railway and Alstom SA 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.