Correlation Between Canadian Pacific and Corporacion America

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

Diversification Opportunities for Canadian Pacific and Corporacion America

0.49

Correlation Coefficient

Canadian Pacific  Corporacion America

Very weak diversification

The 3 months correlation between Canadian and Corporacion is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Corporacion America Airports in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporacion America 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 Corporacion America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporacion America has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Corporacion America go up and down completely randomly.

Pair Corralation between Canadian Pacific and Corporacion America

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the Corporacion America. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Pacific Railway is 1.34 times less risky than Corporacion America. The stock trades about -0.02 of its potential returns per unit of risk. The Corporacion America Airports is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,878  in Corporacion America Airports on December 30, 2024 and sell it today you would lose (56.00) from holding Corporacion America Airports or give up 2.98% of portfolio value over 90 days.

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

Canadian Pacific Railway  vs.  Corporacion America Airports

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.

Corporacion America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Corporacion America Airports has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Corporacion America is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Canadian Pacific and Corporacion America

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

The idea behind Canadian Pacific Railway and Corporacion America Airports 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.