Correlation Between Canadian National and CRRCLimited

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

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

Diversification Opportunities for Canadian National and CRRCLimited

-0.2

Correlation Coefficient

Canadian National  CRRCLimited

Good diversification

The 3 months correlation between Canadian and CRRCLimited is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and CRRC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRRC Limited and Canadian National 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 National Railway are associated (or correlated) with CRRCLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRRC Limited has no effect on the direction of Canadian National i.e., Canadian National and CRRCLimited go up and down completely randomly.

Pair Corralation between Canadian National and CRRCLimited

Assuming the 90 days horizon Canadian National Railway is expected to under-perform the CRRCLimited. But the stock apears to be less risky and, when comparing its historical volatility, Canadian National Railway is 2.11 times less risky than CRRCLimited. The stock trades about -0.06 of its potential returns per unit of risk. The CRRC Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  61.00  in CRRC Limited on October 2, 2024 and sell it today you would earn a total of  0.00  from holding CRRC Limited or generate 0.0% return on investment over 90 days.

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

Canadian National Railway  vs.  CRRC Limited

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CRRC Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CRRC Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CRRCLimited is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Canadian National and CRRCLimited

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

The idea behind Canadian National Railway and CRRC Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.