Correlation Between Cipher Pharmaceuticals and Canadian Pacific

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

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

Diversification Opportunities for Cipher Pharmaceuticals and Canadian Pacific

0.08

Correlation Coefficient

Cipher Pharmaceuticals  Canadian Pacific

Significant diversification

The 3 months correlation between Cipher and Canadian is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Cipher Pharmaceuticals and Canadian Pacific Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Pacific Railway and Cipher Pharmaceuticals 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 Cipher Pharmaceuticals are associated (or correlated) with Canadian Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Pacific Railway has no effect on the direction of Cipher Pharmaceuticals i.e., Cipher Pharmaceuticals and Canadian Pacific go up and down completely randomly.

Pair Corralation between Cipher Pharmaceuticals and Canadian Pacific

Assuming the 90 days trading horizon Cipher Pharmaceuticals is expected to under-perform the Canadian Pacific. In addition to that, Cipher Pharmaceuticals is 2.12 times more volatile than Canadian Pacific Railway. It trades about -0.03 of its total potential returns per unit of risk. Canadian Pacific Railway is currently generating about 0.0 per unit of volatility. If you would invest  10,329  in Canadian Pacific Railway on December 28, 2024 and sell it today you would lose (69.00) from holding Canadian Pacific Railway or give up 0.67% of portfolio value over 90 days.

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

Cipher Pharmaceuticals  vs.  Canadian Pacific Railway

Cipher Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cipher Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Cipher Pharmaceuticals is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Canadian Pacific Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Pacific Railway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Pacific is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cipher Pharmaceuticals and Canadian Pacific

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

The idea behind Cipher Pharmaceuticals and Canadian Pacific Railway 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.