Correlation Between Canadian Pacific and Waste Management

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

Diversification Opportunities for Canadian Pacific and Waste Management

0.31

Correlation Coefficient

Canadian Pacific  Waste Management

Weak diversification

The 3 months correlation between Canadian and Waste is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Waste Management go up and down completely randomly.

Pair Corralation between Canadian Pacific and Waste Management

Allowing for the 90-day total investment horizon Canadian Pacific is expected to generate 6.1 times less return on investment than Waste Management. In addition to that, Canadian Pacific is 1.59 times more volatile than Waste Management. It trades about 0.02 of its total potential returns per unit of risk. Waste Management is currently generating about 0.18 per unit of volatility. If you would invest  20,327  in Waste Management on December 27, 2024 and sell it today you would earn a total of  2,566  from holding Waste Management or generate 12.62% return on investment over 90 days.

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

Canadian Pacific Railway  vs.  Waste Management

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 1 (%) 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.

Waste Management

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Waste Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Pacific and Waste Management

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

The idea behind Canadian Pacific Railway and Waste Management 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.