Correlation Between Royal Helium and Canadian Pacific

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

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

Diversification Opportunities for Royal Helium and Canadian Pacific

0.67

Correlation Coefficient

Royal Helium  Canadian Pacific

Poor diversification

The 3 months correlation between Royal and Canadian is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Royal Helium 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 Royal Helium 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 Royal Helium 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 Royal Helium i.e., Royal Helium and Canadian Pacific go up and down completely randomly.

Pair Corralation between Royal Helium and Canadian Pacific

Assuming the 90 days horizon Royal Helium is expected to generate 7.81 times more return on investment than Canadian Pacific. However, Royal Helium is 7.81 times more volatile than Canadian Pacific Railway. It trades about -0.01 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about -0.07 per unit of risk. If you would invest  4.50  in Royal Helium on September 3, 2024 and sell it today you would lose (1.00) from holding Royal Helium or give up 22.22% of portfolio value over 90 days.

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

Royal Helium  vs.  Canadian Pacific Railway

Royal Helium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Helium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Royal Helium is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Canadian Pacific Railway

Risk-Adjusted Performance

0 of 100

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 Royal Helium and Canadian Pacific

The main advantage of trading using opposite Royal Helium and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Helium 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 Royal Helium 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.