Correlation Between Canadian Pacific and XPO Logistics

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

Diversification Opportunities for Canadian Pacific and XPO Logistics

-0.79

Correlation Coefficient

Canadian Pacific  XPO Logistics

Pay attention - limited upside

The 3 months correlation between Canadian and XPO is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and XPO Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XPO Logistics 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 XPO Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XPO Logistics has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and XPO Logistics go up and down completely randomly.

Pair Corralation between Canadian Pacific and XPO Logistics

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the XPO Logistics. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Pacific Railway is 1.8 times less risky than XPO Logistics. The stock trades about -0.1 of its potential returns per unit of risk. The XPO Logistics is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  13,350  in XPO Logistics on September 5, 2024 and sell it today you would earn a total of  1,986  from holding XPO Logistics or generate 14.88% 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.  XPO Logistics

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.

XPO Logistics

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in XPO Logistics are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, XPO Logistics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Pacific and XPO Logistics

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

The idea behind Canadian Pacific Railway and XPO Logistics 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.