Correlation Between Canadian Pacific and Highway Holdings

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

Diversification Opportunities for Canadian Pacific and Highway Holdings

-0.38

Correlation Coefficient

Canadian Pacific  Highway Holdings

Very good diversification

The 3 months correlation between Canadian and Highway is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Highway Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highway Holdings 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 Highway Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highway Holdings has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Highway Holdings go up and down completely randomly.

Pair Corralation between Canadian Pacific and Highway Holdings

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to generate 1.18 times more return on investment than Highway Holdings. However, Canadian Pacific is 1.18 times more volatile than Highway Holdings Limited. It trades about 0.0 of its potential returns per unit of risk. Highway Holdings Limited is currently generating about -0.01 per unit of risk. If you would invest  7,301  in Canadian Pacific Railway on December 26, 2024 and sell it today you would lose (63.00) from holding Canadian Pacific Railway or give up 0.86% of portfolio value over 90 days.

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

Canadian Pacific Railway  vs.  Highway Holdings Limited

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.

Highway Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Highway Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Highway Holdings is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Canadian Pacific and Highway Holdings

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

The idea behind Canadian Pacific Railway and Highway Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.