Correlation Between Canadian Tire and Metro

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

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

Diversification Opportunities for Canadian Tire and Metro

-0.23

Correlation Coefficient

Canadian Tire  Metro

Very good diversification

The 3 months correlation between Canadian and Metro is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Tire and Metro Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Inc and Canadian Tire 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 Tire are associated (or correlated) with Metro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Inc has no effect on the direction of Canadian Tire i.e., Canadian Tire and Metro go up and down completely randomly.

Pair Corralation between Canadian Tire and Metro

Assuming the 90 days trading horizon Canadian Tire is expected to generate 5.43 times less return on investment than Metro. But when comparing it to its historical volatility, Canadian Tire is 1.0 times less risky than Metro. It trades about 0.03 of its potential returns per unit of risk. Metro Inc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,520  in Metro Inc on September 4, 2024 and sell it today you would earn a total of  691.00  from holding Metro Inc or generate 8.11% return on investment over 90 days.

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

Canadian Tire  vs.  Metro Inc

Canadian Tire

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Tire are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Canadian Tire is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Metro Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Metro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canadian Tire and Metro

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

The idea behind Canadian Tire and Metro Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.