Correlation Between Canadian National and QBE Insurance

Can any of the company-specific risk be diversified away by investing in both Canadian National and QBE Insurance 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 QBE Insurance 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 QBE Insurance Group, you can compare the effects of market volatilities on Canadian National and QBE Insurance 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 QBE Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian National and QBE Insurance.

Diversification Opportunities for Canadian National and QBE Insurance

-0.03

Correlation Coefficient

Canadian National  QBE Insurance

Good diversification

The 3 months correlation between Canadian and QBE is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and QBE Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QBE Insurance Group 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 QBE Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QBE Insurance Group has no effect on the direction of Canadian National i.e., Canadian National and QBE Insurance go up and down completely randomly.

Pair Corralation between Canadian National and QBE Insurance

Assuming the 90 days horizon Canadian National Railway is expected to under-perform the QBE Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Canadian National Railway is 1.36 times less risky than QBE Insurance. The stock trades about 0.0 of its potential returns per unit of risk. The QBE Insurance Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,180  in QBE Insurance Group on October 11, 2024 and sell it today you would earn a total of  10.00  from holding QBE Insurance Group or generate 0.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Canadian National Railway  vs.  QBE Insurance Group

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 nearly stable basic indicators, Canadian National is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

QBE Insurance Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in QBE Insurance Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, QBE Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian National and QBE Insurance

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

The idea behind Canadian National Railway and QBE Insurance Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.