Correlation Between Canadian TireLimited and Federal Agricultural

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

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

Diversification Opportunities for Canadian TireLimited and Federal Agricultural

0.15

Correlation Coefficient

Canadian TireLimited  Federal Agricultural

Average diversification

The 3 months correlation between Canadian and Federal is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Tire and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural and Canadian TireLimited 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 Canadian Tire are associated (or correlated) with Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Canadian TireLimited i.e., Canadian TireLimited and Federal Agricultural go up and down completely randomly.

Pair Corralation between Canadian TireLimited and Federal Agricultural

Assuming the 90 days trading horizon Canadian Tire is expected to generate 1.05 times more return on investment than Federal Agricultural. However, Canadian TireLimited is 1.05 times more volatile than Federal Agricultural Mortgage. It trades about -0.04 of its potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about -0.06 per unit of risk. If you would invest  10,054  in Canadian Tire on December 22, 2024 and sell it today you would lose (539.00) from holding Canadian Tire or give up 5.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Canadian Tire  vs.  Federal Agricultural Mortgage

Canadian TireLimited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Tire has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian TireLimited is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Federal Agricultural

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Canadian TireLimited and Federal Agricultural

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

The idea behind Canadian Tire and Federal Agricultural Mortgage 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.