Correlation Between CP ALL and Pacific Pipe

Can any of the company-specific risk be diversified away by investing in both CP ALL and Pacific Pipe 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 CP ALL and Pacific Pipe into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CP ALL Public and Pacific Pipe Public, you can compare the effects of market volatilities on CP ALL and Pacific Pipe 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 CP ALL with a short position of Pacific Pipe. Check out your portfolio center. Please also check ongoing floating volatility patterns of CP ALL and Pacific Pipe.

Diversification Opportunities for CP ALL and Pacific Pipe

0.52

Correlation Coefficient

CP ALL  Pacific Pipe

Very weak diversification

The 3 months correlation between CPALL and Pacific is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding CP ALL Public and Pacific Pipe Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Pipe Public and CP ALL 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 CP ALL Public are associated (or correlated) with Pacific Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Pipe Public has no effect on the direction of CP ALL i.e., CP ALL and Pacific Pipe go up and down completely randomly.

Pair Corralation between CP ALL and Pacific Pipe

Assuming the 90 days trading horizon CP ALL Public is expected to under-perform the Pacific Pipe. In addition to that, CP ALL is 1.02 times more volatile than Pacific Pipe Public. It trades about -0.06 of its total potential returns per unit of risk. Pacific Pipe Public is currently generating about -0.03 per unit of volatility. If you would invest  166.00  in Pacific Pipe Public on December 28, 2024 and sell it today you would lose (11.00) from holding Pacific Pipe Public or give up 6.63% of portfolio value over 90 days.

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

CP ALL Public  vs.  Pacific Pipe Public

CP ALL Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days CP ALL Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pacific Pipe Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacific Pipe Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Pacific Pipe is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with CP ALL and Pacific Pipe

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

The idea behind CP ALL Public and Pacific Pipe Public 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.