Correlation Between BCE and Canadian Pacific
Can any of the company-specific risk be diversified away by investing in both BCE 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 BCE and Canadian Pacific 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 Pacific Railway, you can compare the effects of market volatilities on BCE 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 BCE with a short position of Canadian Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Canadian Pacific.
Diversification Opportunities for BCE and Canadian Pacific
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between BCE and Canadian is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc 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 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 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 BCE i.e., BCE and Canadian Pacific go up and down completely randomly.
Pair Corralation between BCE and Canadian Pacific
Assuming the 90 days trading horizon BCE is expected to generate 10.66 times less return on investment than Canadian Pacific. But when comparing it to its historical volatility, BCE Inc is 1.01 times less risky than Canadian Pacific. It trades about 0.03 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 10,679 in Canadian Pacific Railway on November 4, 2024 and sell it today you would earn a total of 871.00 from holding Canadian Pacific Railway or generate 8.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BCE Inc vs. Canadian Pacific Railway
Performance |
| Timeline |
| BCE Inc |
| Canadian Pacific Railway |
BCE and Canadian Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BCE and Canadian Pacific
The main advantage of trading using opposite BCE and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCE 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 BCE Inc 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.| Canadian Pacific vs. Canadian National Railway | Canadian Pacific vs. TC Energy Corp | Canadian Pacific vs. Fortis Inc | Canadian Pacific vs. Loblaw Companies Limited |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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