Correlation Between Canadian Pacific and Canadian National
Can any of the company-specific risk be diversified away by investing in both Canadian Pacific 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 Canadian Pacific and Canadian National 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 Canadian National Railway, you can compare the effects of market volatilities on Canadian Pacific 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 Canadian Pacific with a short position of Canadian National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Pacific and Canadian National.
Diversification Opportunities for Canadian Pacific and Canadian National
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Canadian and Canadian is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway 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 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 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 Canadian Pacific i.e., Canadian Pacific and Canadian National go up and down completely randomly.
Pair Corralation between Canadian Pacific and Canadian National
Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the Canadian National. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Pacific Railway is 1.08 times less risky than Canadian National. The stock trades about -0.22 of its potential returns per unit of risk. The Canadian National Railway is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 11,224 in Canadian National Railway on August 23, 2024 and sell it today you would lose (304.00) from holding Canadian National Railway or give up 2.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian Pacific Railway vs. Canadian National Railway
Performance |
| Timeline |
| Canadian Pacific Railway |
| Canadian National Railway |
Canadian Pacific and Canadian National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian Pacific and Canadian National
The main advantage of trading using opposite Canadian Pacific and Canadian National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Pacific 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.| Canadian Pacific vs. Union Pacific | Canadian Pacific vs. CSX Corporation | Canadian Pacific vs. Norfolk Southern | Canadian Pacific vs. Westinghouse Air Brake |
| Canadian National vs. Union Pacific | Canadian National vs. CSX Corporation | Canadian National vs. Norfolk Southern | Canadian National vs. Westinghouse Air Brake |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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