Correlation Between Canadian Pacific and Trinity Industries
Can any of the company-specific risk be diversified away by investing in both Canadian Pacific and Trinity Industries 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 Trinity Industries 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 Trinity Industries, you can compare the effects of market volatilities on Canadian Pacific and Trinity Industries 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 Trinity Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Pacific and Trinity Industries.
Diversification Opportunities for Canadian Pacific and Trinity Industries
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Canadian and Trinity is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and Trinity Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trinity Industries 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 Trinity Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trinity Industries has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and Trinity Industries go up and down completely randomly.
Pair Corralation between Canadian Pacific and Trinity Industries
Allowing for the 90-day total investment horizon Canadian Pacific is expected to generate 5.58 times less return on investment than Trinity Industries. But when comparing it to its historical volatility, Canadian Pacific Railway is 1.71 times less risky than Trinity Industries. It trades about 0.03 of its potential returns per unit of risk. Trinity Industries is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,401 in Trinity Industries on August 26, 2024 and sell it today you would earn a total of 1,354 from holding Trinity Industries or generate 56.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian Pacific Railway vs. Trinity Industries
Performance |
| Timeline |
| Canadian Pacific Railway |
| Trinity Industries |
Canadian Pacific and Trinity Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian Pacific and Trinity Industries
The main advantage of trading using opposite Canadian Pacific and Trinity Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Pacific position performs unexpectedly, Trinity Industries 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 Trinity Industries will offset losses from the drop in Trinity Industries' long position.| Canadian Pacific vs. Union Pacific | Canadian Pacific vs. CSX Corporation | Canadian Pacific vs. Norfolk Southern | Canadian Pacific vs. Westinghouse Air Brake |
| Trinity Industries vs. LB Foster | Trinity Industries vs. Freightcar America | Trinity Industries vs. Westinghouse Air Brake | Trinity Industries vs. Norfolk Southern |
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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