Correlation Between BCE and Canadian National
Can any of the company-specific risk be diversified away by investing in both BCE 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 BCE and Canadian National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BCE Inc and Canadian National Railway, you can compare the effects of market volatilities on BCE 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 BCE with a short position of Canadian National. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Canadian National.
Diversification Opportunities for BCE and Canadian National
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BCE and Canadian is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc 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 BCE 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 BCE Inc 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 BCE i.e., BCE and Canadian National go up and down completely randomly.
Pair Corralation between BCE and Canadian National
Assuming the 90 days trading horizon BCE Inc is expected to under-perform the Canadian National. But the stock apears to be less risky and, when comparing its historical volatility, BCE Inc is 1.07 times less risky than Canadian National. The stock trades about -0.07 of its potential returns per unit of risk. The Canadian National Railway is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 16,446 in Canadian National Railway on August 28, 2024 and sell it today you would lose (817.00) from holding Canadian National Railway or give up 4.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BCE Inc vs. Canadian National Railway
Performance |
| Timeline |
| BCE Inc |
| Canadian National Railway |
BCE and Canadian National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BCE and Canadian National
The main advantage of trading using opposite BCE and Canadian National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCE 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 BCE Inc 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.| Canadian National vs. Canadian Pacific Railway | Canadian National vs. Fortis Inc | Canadian National vs. BCE Inc | Canadian National vs. Telus Corp |
Check out your portfolio center.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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