Correlation Between Canadian Pacific and Vanguard Industrials

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

Diversification Opportunities for Canadian Pacific and Vanguard Industrials

-0.73

Correlation Coefficient

Canadian Pacific  Vanguard Industrials

Pay attention - limited upside

The 3 months correlation between Canadian and Vanguard is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials 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 Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Vanguard Industrials go up and down completely randomly.

Pair Corralation between Canadian Pacific and Vanguard Industrials

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the Vanguard Industrials. In addition to that, Canadian Pacific is 1.31 times more volatile than Vanguard Industrials Index. It trades about -0.1 of its total potential returns per unit of risk. Vanguard Industrials Index is currently generating about 0.22 per unit of volatility. If you would invest  12,613  in Vanguard Industrials Index on September 3, 2024 and sell it today you would earn a total of  1,722  from holding Vanguard Industrials Index or generate 13.65% return on investment over 90 days.

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

Canadian Pacific Railway  vs.  Vanguard Industrials Index

Canadian Pacific Railway

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Vanguard Industrials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Industrials Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Industrials showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Pacific and Vanguard Industrials

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

The idea behind Canadian Pacific Railway and Vanguard Industrials Index 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.