Correlation Between Canadian Pacific and Arq

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

Diversification Opportunities for Canadian Pacific and Arq

-0.76

Correlation Coefficient

Canadian Pacific  Arq

Pay attention - limited upside

The 3 months correlation between Canadian and Arq is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Arq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arq Inc 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 Arq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arq Inc has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Arq go up and down completely randomly.

Pair Corralation between Canadian Pacific and Arq

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to generate 0.56 times more return on investment than Arq. However, Canadian Pacific Railway is 1.79 times less risky than Arq. It trades about -0.24 of its potential returns per unit of risk. Arq Inc is currently generating about -0.26 per unit of risk. If you would invest  7,706  in Canadian Pacific Railway on September 25, 2024 and sell it today you would lose (480.00) from holding Canadian Pacific Railway or give up 6.23% of portfolio value over 90 days.

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

Canadian Pacific Railway  vs.  Arq Inc

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. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Arq Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arq Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Arq reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Pacific and Arq

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

The idea behind Canadian Pacific Railway and Arq Inc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..