Correlation Between DIRTT Environmental and Canadian Pacific

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

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

Diversification Opportunities for DIRTT Environmental and Canadian Pacific

0.44

Correlation Coefficient

DIRTT Environmental  Canadian Pacific

Very weak diversification

The 3 months correlation between DIRTT and Canadian is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding DIRTT Environmental Solutions and Canadian Pacific Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Pacific Railway and DIRTT Environmental 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 DIRTT Environmental Solutions are associated (or correlated) with Canadian Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Pacific Railway has no effect on the direction of DIRTT Environmental i.e., DIRTT Environmental and Canadian Pacific go up and down completely randomly.

Pair Corralation between DIRTT Environmental and Canadian Pacific

Assuming the 90 days trading horizon DIRTT Environmental Solutions is expected to generate 2.64 times more return on investment than Canadian Pacific. However, DIRTT Environmental is 2.64 times more volatile than Canadian Pacific Railway. It trades about 0.05 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about -0.03 per unit of risk. If you would invest  96.00  in DIRTT Environmental Solutions on December 29, 2024 and sell it today you would earn a total of  8.00  from holding DIRTT Environmental Solutions or generate 8.33% return on investment over 90 days.

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

DIRTT Environmental Solutions  vs.  Canadian Pacific Railway

DIRTT Environmental

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DIRTT Environmental Solutions are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, DIRTT Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Pacific Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Pacific Railway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Pacific is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with DIRTT Environmental and Canadian Pacific

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

The idea behind DIRTT Environmental Solutions and Canadian Pacific Railway 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.