Correlation Between United Parcel and Canadian National

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

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

Diversification Opportunities for United Parcel and Canadian National

0.43

Correlation Coefficient

United Parcel  Canadian National

Very weak diversification

The 3 months correlation between United and Canadian is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding United Parcel Service 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 United Parcel 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 United Parcel Service 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 United Parcel i.e., United Parcel and Canadian National go up and down completely randomly.

Pair Corralation between United Parcel and Canadian National

Considering the 90-day investment horizon United Parcel Service is expected to under-perform the Canadian National. In addition to that, United Parcel is 1.45 times more volatile than Canadian National Railway. It trades about -0.07 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 28, 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	Weak
Accuracy	100.0%
Values	Daily Returns

United Parcel Service  vs.  Canadian National Railway

United Parcel Service

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private 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 United Parcel and Canadian National

The main advantage of trading using opposite United Parcel and Canadian National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Parcel 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 United Parcel Service 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.