Correlation Between Nutrien and Canadian Pacific

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

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

Diversification Opportunities for Nutrien and Canadian Pacific

0.48

Correlation Coefficient

Nutrien  Canadian Pacific

Very weak diversification

The 3 months correlation between Nutrien and Canadian is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Nutrien 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 Nutrien 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 Nutrien 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 Nutrien i.e., Nutrien and Canadian Pacific go up and down completely randomly.

Pair Corralation between Nutrien and Canadian Pacific

Assuming the 90 days trading horizon Nutrien is expected to generate 1.13 times more return on investment than Canadian Pacific. However, Nutrien is 1.13 times more volatile than Canadian Pacific Railway. It trades about 0.12 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  6,291  in Nutrien on December 30, 2024 and sell it today you would earn a total of  883.00  from holding Nutrien or generate 14.04% return on investment over 90 days.

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

Nutrien  vs.  Canadian Pacific Railway

Nutrien

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nutrien are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Nutrien 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 Nutrien and Canadian Pacific

The main advantage of trading using opposite Nutrien and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nutrien 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 Nutrien 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.