Correlation Between Canadian Pacific and Genpact

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

Diversification Opportunities for Canadian Pacific and Genpact

0.49

Correlation Coefficient

Canadian Pacific  Genpact

Very weak diversification

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

Pair Corralation between Canadian Pacific and Genpact

Allowing for the 90-day total investment horizon Canadian Pacific is expected to generate 6.49 times less return on investment than Genpact. But when comparing it to its historical volatility, Canadian Pacific Railway is 1.0 times less risky than Genpact. It trades about 0.03 of its potential returns per unit of risk. Genpact Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,264  in Genpact Limited on December 28, 2024 and sell it today you would earn a total of  811.00  from holding Genpact Limited or generate 19.02% return on investment over 90 days.

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

Canadian Pacific Railway  vs.  Genpact Limited

Canadian Pacific Railway

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Pacific Railway are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Genpact Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Genpact Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Genpact reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Pacific and Genpact

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

The idea behind Canadian Pacific Railway and Genpact Limited 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.