Correlation Between Canadian Pacific and Knight Transportation

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

Diversification Opportunities for Canadian Pacific and Knight Transportation

0.46

Correlation Coefficient

Canadian Pacific  Knight Transportation

Very weak diversification

The 3 months correlation between Canadian and Knight is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Knight Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Transportation 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 Knight Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knight Transportation has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Knight Transportation go up and down completely randomly.

Pair Corralation between Canadian Pacific and Knight Transportation

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to generate 1.05 times more return on investment than Knight Transportation. However, Canadian Pacific is 1.05 times more volatile than Knight Transportation. It trades about 0.03 of its potential returns per unit of risk. Knight Transportation is currently generating about -0.14 per unit of risk. If you would invest  7,196  in Canadian Pacific Railway on December 28, 2024 and sell it today you would earn a total of  132.00  from holding Canadian Pacific Railway or generate 1.83% 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.  Knight Transportation

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.

Knight Transportation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knight Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Canadian Pacific and Knight Transportation

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

The idea behind Canadian Pacific Railway and Knight Transportation 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.

Check out your portfolio center.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.