Correlation Between Canadian TireLimited and Nutrien

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

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

Diversification Opportunities for Canadian TireLimited and Nutrien

0.38

Correlation Coefficient

Canadian TireLimited  Nutrien

Weak diversification

The 3 months correlation between Canadian and Nutrien is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Tire and Nutrien in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nutrien and Canadian TireLimited 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 Nutrien. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nutrien has no effect on the direction of Canadian TireLimited i.e., Canadian TireLimited and Nutrien go up and down completely randomly.

Pair Corralation between Canadian TireLimited and Nutrien

Assuming the 90 days trading horizon Canadian Tire is expected to under-perform the Nutrien. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Tire is 1.03 times less risky than Nutrien. The stock trades about -0.04 of its potential returns per unit of risk. The Nutrien is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  6,484  in Nutrien on November 29, 2024 and sell it today you would earn a total of  1,099  from holding Nutrien or generate 16.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Canadian Tire  vs.  Nutrien

Canadian TireLimited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Tire has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Canadian TireLimited is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Nutrien

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nutrien are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Nutrien displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian TireLimited and Nutrien

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

The idea behind Canadian Tire and Nutrien 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.