Correlation Between Canadian Pacific and Central Japan

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

Diversification Opportunities for Canadian Pacific and Central Japan

-0.28

Correlation Coefficient

Canadian Pacific  Central Japan

Very good diversification

The 3 months correlation between Canadian and Central is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Central Japan go up and down completely randomly.

Pair Corralation between Canadian Pacific and Central Japan

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the Central Japan. In addition to that, Canadian Pacific is 1.29 times more volatile than Central Japan Railway. It trades about -0.02 of its total potential returns per unit of risk. Central Japan Railway is currently generating about 0.06 per unit of volatility. If you would invest  934.00  in Central Japan Railway on December 29, 2024 and sell it today you would earn a total of  47.00  from holding Central Japan Railway or generate 5.03% return on investment over 90 days.

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

Canadian Pacific Railway  vs.  Central Japan Railway

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.

Central Japan Railway

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Japan Railway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Central Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Canadian Pacific and Central Japan

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

The idea behind Canadian Pacific Railway and Central Japan Railway 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 Stocks Directory module to find actively traded stocks across global markets.