Correlation Between Canadian National and Canadian Pacific
Can any of the company-specific risk be diversified away by investing in both Canadian National 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 Canadian National and Canadian Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Canadian National Railway and Canadian Pacific Railway, you can compare the effects of market volatilities on Canadian National 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 Canadian National with a short position of Canadian Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian National and Canadian Pacific.
Diversification Opportunities for Canadian National and Canadian Pacific
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Canadian and Canadian is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway 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 Canadian National 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 National Railway 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 Canadian National i.e., Canadian National and Canadian Pacific go up and down completely randomly.
Pair Corralation between Canadian National and Canadian Pacific
Assuming the 90 days trading horizon Canadian National is expected to generate 5.86 times less return on investment than Canadian Pacific. But when comparing it to its historical volatility, Canadian National Railway is 1.23 times less risky than Canadian Pacific. It trades about 0.06 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 10,500 in Canadian Pacific Railway on October 24, 2024 and sell it today you would earn a total of 640.00 from holding Canadian Pacific Railway or generate 6.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian National Railway vs. Canadian Pacific Railway
Performance |
| Timeline |
| Canadian National Railway |
| Canadian Pacific Railway |
Canadian National and Canadian Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian National and Canadian Pacific
The main advantage of trading using opposite Canadian National and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National 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.| Canadian National vs. Canadian Pacific Railway | Canadian National vs. Fortis Inc | Canadian National vs. BCE Inc | Canadian National vs. Telus Corp |
| 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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