Correlation Between Canadian Pacific and Enbridge
Can any of the company-specific risk be diversified away by investing in both Canadian Pacific and Enbridge 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 Pacific and Enbridge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Canadian Pacific Railway and Enbridge, you can compare the effects of market volatilities on Canadian Pacific and Enbridge 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 Pacific with a short position of Enbridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Pacific and Enbridge.
Diversification Opportunities for Canadian Pacific and Enbridge
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Canadian and Enbridge is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Enbridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge and Canadian Pacific 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 Pacific Railway are associated (or correlated) with Enbridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Enbridge go up and down completely randomly.
Pair Corralation between Canadian Pacific and Enbridge
Assuming the 90 days horizon Canadian Pacific Railway is expected to generate 1.15 times more return on investment than Enbridge. However, Canadian Pacific is 1.15 times more volatile than Enbridge. It trades about 0.31 of its potential returns per unit of risk. Enbridge is currently generating about 0.05 per unit of risk. 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 Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian Pacific Railway vs. Enbridge
Performance |
| Timeline |
| Canadian Pacific Railway |
| Enbridge |
Canadian Pacific and Enbridge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian Pacific and Enbridge
The main advantage of trading using opposite Canadian Pacific and Enbridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Pacific position performs unexpectedly, Enbridge 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 Enbridge will offset losses from the drop in Enbridge's long position.| Canadian Pacific vs. Canadian National Railway | Canadian Pacific vs. TC Energy Corp | Canadian Pacific vs. Fortis Inc | Canadian Pacific vs. Loblaw Companies Limited |
| Enbridge vs. Suncor Energy | Enbridge vs. Toronto Dominion Bank | Enbridge vs. Bank of Nova | Enbridge vs. BCE Inc |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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