Correlation Between Freightcar America and Canadian National

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

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

Diversification Opportunities for Freightcar America and Canadian National

0.77

Correlation Coefficient

Freightcar America  Canadian National

Poor diversification

The 3 months correlation between Freightcar and Canadian is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Freightcar America 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 Freightcar America 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 Freightcar America 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 Freightcar America i.e., Freightcar America and Canadian National go up and down completely randomly.

Pair Corralation between Freightcar America and Canadian National

Given the investment horizon of 90 days Freightcar America is expected to under-perform the Canadian National. In addition to that, Freightcar America is 3.38 times more volatile than Canadian National Railway. It trades about -0.12 of its total potential returns per unit of risk. Canadian National Railway is currently generating about -0.03 per unit of volatility. If you would invest  10,078  in Canadian National Railway on December 30, 2024 and sell it today you would lose (333.00) from holding Canadian National Railway or give up 3.3% of portfolio value over 90 days.

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

Freightcar America  vs.  Canadian National Railway

Freightcar America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freightcar America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Canadian National Railway

Risk-Adjusted Performance

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 fairly strong basic indicators, Canadian National is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Freightcar America and Canadian National

The main advantage of trading using opposite Freightcar America and Canadian National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freightcar America 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 Freightcar America 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.