Correlation Between Canadian National and TC Energy

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

Diversification Opportunities for Canadian National and TC Energy

-0.65

Correlation Coefficient

Canadian National  TC Energy

Excellent diversification

The 3 months correlation between Canadian and TRP is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and TC Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TC Energy Corp 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 TC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TC Energy Corp has no effect on the direction of Canadian National i.e., Canadian National and TC Energy go up and down completely randomly.

Pair Corralation between Canadian National and TC Energy

Assuming the 90 days trading horizon Canadian National Railway is expected to under-perform the TC Energy. But the stock apears to be less risky and, when comparing its historical volatility, Canadian National Railway is 1.16 times less risky than TC Energy. The stock trades about -0.11 of its potential returns per unit of risk. The TC Energy Corp is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  5,678  in TC Energy Corp on September 13, 2024 and sell it today you would earn a total of  1,020  from holding TC Energy Corp or generate 17.96% return on investment over 90 days.

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

Canadian National Railway  vs.  TC Energy Corp

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.

TC Energy Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TC Energy Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TC Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian National and TC Energy

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

The idea behind Canadian National Railway and TC Energy Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.