Correlation Between Metro and Canadian National

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

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

Diversification Opportunities for Metro and Canadian National

0.01

Correlation Coefficient

Metro  Canadian National

Significant diversification

The 3 months correlation between Metro and Canadian is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Metro Inc and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway and Metro 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 Metro Inc are associated (or correlated) with Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of Metro i.e., Metro and Canadian National go up and down completely randomly.

Pair Corralation between Metro and Canadian National

Assuming the 90 days trading horizon Metro Inc is expected to generate 0.83 times more return on investment than Canadian National. However, Metro Inc is 1.2 times less risky than Canadian National. It trades about 0.14 of its potential returns per unit of risk. Canadian National Railway is currently generating about -0.02 per unit of risk. If you would invest  8,422  in Metro Inc on September 2, 2024 and sell it today you would earn a total of  701.00  from holding Metro Inc or generate 8.32% return on investment over 90 days.

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

Metro Inc  vs.  Canadian National Railway

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.

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. In spite of very healthy basic indicators, Canadian National is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Metro and Canadian National

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

The idea behind Metro Inc and Canadian National 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.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.