Correlation Between Loblaw Companies and Canadian National
Can any of the company-specific risk be diversified away by investing in both Loblaw Companies 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 Loblaw Companies and Canadian National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Loblaw Companies Limited and Canadian National Railway, you can compare the effects of market volatilities on Loblaw Companies 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 Loblaw Companies with a short position of Canadian National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loblaw Companies and Canadian National.
Diversification Opportunities for Loblaw Companies and Canadian National
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between Loblaw and Canadian is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Loblaw Companies Limited 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 Loblaw Companies 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 Loblaw Companies Limited 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 Loblaw Companies i.e., Loblaw Companies and Canadian National go up and down completely randomly.
Pair Corralation between Loblaw Companies and Canadian National
Given the investment horizon of 90 days Loblaw Companies is expected to generate 1.59 times less return on investment than Canadian National. But when comparing it to its historical volatility, Loblaw Companies Limited is 1.17 times less risky than Canadian National. It trades about 0.06 of its potential returns per unit of risk. Canadian National Railway is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 15,272 in Canadian National Railway on August 31, 2024 and sell it today you would earn a total of 361.00 from holding Canadian National Railway or generate 2.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Loblaw Companies Limited vs. Canadian National Railway
Performance |
| Timeline |
| Loblaw Companies |
| Canadian National Railway |
Loblaw Companies and Canadian National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Loblaw Companies and Canadian National
The main advantage of trading using opposite Loblaw Companies and Canadian National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Loblaw Companies 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.| Loblaw Companies vs. Metro Inc | Loblaw Companies vs. George Weston Limited | Loblaw Companies vs. Canadian Tire | Loblaw Companies vs. Dollarama |
| Canadian National vs. Canadian Pacific Railway | Canadian National vs. Fortis Inc | Canadian National vs. BCE Inc | Canadian National vs. Telus Corp |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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