Correlation Between Canadian Natural and Canadian TireLimited

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

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

Diversification Opportunities for Canadian Natural and Canadian TireLimited

0.15

Correlation Coefficient

Canadian Natural  Canadian TireLimited

Average diversification

The 3 months correlation between Canadian and Canadian is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Canadian Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian TireLimited and Canadian Natural 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 Natural Resources are associated (or correlated) with Canadian TireLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian TireLimited has no effect on the direction of Canadian Natural i.e., Canadian Natural and Canadian TireLimited go up and down completely randomly.

Pair Corralation between Canadian Natural and Canadian TireLimited

Assuming the 90 days horizon Canadian Natural Resources is expected to under-perform the Canadian TireLimited. In addition to that, Canadian Natural is 2.21 times more volatile than Canadian Tire. It trades about -0.03 of its total potential returns per unit of risk. Canadian Tire is currently generating about 0.06 per unit of volatility. If you would invest  10,170  in Canadian Tire on October 7, 2024 and sell it today you would earn a total of  170.00  from holding Canadian Tire or generate 1.67% return on investment over 90 days.

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

Canadian Natural Resources  vs.  Canadian Tire

Canadian Natural Res

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Natural is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian TireLimited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Tire are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canadian TireLimited is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Canadian Natural and Canadian TireLimited

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

The idea behind Canadian Natural Resources and Canadian Tire 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.