Correlation Between Canadian National and Union Pacific
Can any of the company-specific risk be diversified away by investing in both Canadian National and Union 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 Union 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 Union Pacific, you can compare the effects of market volatilities on Canadian National and Union 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 Union Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian National and Union Pacific.
Diversification Opportunities for Canadian National and Union Pacific
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Canadian and Union is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific 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 Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of Canadian National i.e., Canadian National and Union Pacific go up and down completely randomly.
Pair Corralation between Canadian National and Union Pacific
Assuming the 90 days horizon Canadian National is expected to generate 1.94 times less return on investment than Union Pacific. But when comparing it to its historical volatility, Canadian National Railway is 1.2 times less risky than Union Pacific. It trades about 0.2 of its potential returns per unit of risk. Union Pacific is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 22,030 in Union Pacific on October 29, 2024 and sell it today you would earn a total of 1,585 from holding Union Pacific or generate 7.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian National Railway vs. Union Pacific
Performance |
| Timeline |
| Canadian National Railway |
| Union Pacific |
Canadian National and Union Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian National and Union Pacific
The main advantage of trading using opposite Canadian National and Union Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National position performs unexpectedly, Union 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 Union Pacific will offset losses from the drop in Union Pacific's long position.| Canadian National vs. Lamar Advertising | Canadian National vs. ARISTOCRAT LEISURE | Canadian National vs. MUTUIONLINE | Canadian National vs. Salesforce |
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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