Correlation Between Canadian Pacific and Canadian National

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

Diversification Opportunities for Canadian Pacific and Canadian National

0.58

Correlation Coefficient

Canadian Pacific  Canadian National

Very weak diversification

The 3 months correlation between Canadian and Canadian is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National 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 Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Canadian National go up and down completely randomly.

Pair Corralation between Canadian Pacific and Canadian National

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the Canadian National. In addition to that, Canadian Pacific is 1.23 times more volatile than Canadian National Railway. It trades about -0.02 of its total potential returns per unit of risk. Canadian National Railway is currently generating about 0.0 per unit of volatility. If you would invest  10,078  in Canadian National Railway on December 29, 2024 and sell it today you would lose (102.00) from holding Canadian National Railway or give up 1.01% 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.  Canadian National 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.

Canadian National Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Canadian National is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Canadian Pacific and Canadian National

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

The idea behind Canadian Pacific Railway and Canadian National 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..