Correlation Between Canadian National and Canadian Tire

Can any of the company-specific risk be diversified away by investing in both Canadian National and Canadian Tire 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 Canadian Tire 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 Canadian Tire, you can compare the effects of market volatilities on Canadian National and Canadian Tire 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 Canadian Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian National and Canadian Tire.

Diversification Opportunities for Canadian National and Canadian Tire

0.47

Correlation Coefficient

Canadian National  Canadian Tire

Very weak diversification

The 3 months correlation between Canadian and Canadian is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and Canadian Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Tire 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 Canadian Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Tire has no effect on the direction of Canadian National i.e., Canadian National and Canadian Tire go up and down completely randomly.

Pair Corralation between Canadian National and Canadian Tire

Assuming the 90 days trading horizon Canadian National Railway is expected to under-perform the Canadian Tire. In addition to that, Canadian National is 1.03 times more volatile than Canadian Tire. It trades about -0.11 of its total potential returns per unit of risk. Canadian Tire is currently generating about -0.07 per unit of volatility. If you would invest  16,023  in Canadian Tire on September 30, 2024 and sell it today you would lose (736.00) from holding Canadian Tire or give up 4.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Canadian National Railway  vs.  Canadian Tire

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Canadian Tire

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Tire has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Canadian Tire is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Canadian National and Canadian Tire

The main advantage of trading using opposite Canadian National and Canadian Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National position performs unexpectedly, Canadian Tire 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 Tire will offset losses from the drop in Canadian Tire's long position.

The idea behind Canadian National Railway and Canadian Tire pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.