Correlation Between TFI International and Canadian Western

Can any of the company-specific risk be diversified away by investing in both TFI International and Canadian Western 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 TFI International and Canadian Western into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TFI International and Canadian Western Bank, you can compare the effects of market volatilities on TFI International and Canadian Western 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 TFI International with a short position of Canadian Western. Check out your portfolio center. Please also check ongoing floating volatility patterns of TFI International and Canadian Western.

Diversification Opportunities for TFI International and Canadian Western

0.53

Correlation Coefficient

TFI International  Canadian Western

Very weak diversification

The 3 months correlation between TFI and Canadian is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding TFI International and Canadian Western Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Western Bank and TFI International 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 TFI International are associated (or correlated) with Canadian Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Western Bank has no effect on the direction of TFI International i.e., TFI International and Canadian Western go up and down completely randomly.

Pair Corralation between TFI International and Canadian Western

Assuming the 90 days trading horizon TFI International is expected to generate 1.52 times less return on investment than Canadian Western. In addition to that, TFI International is 2.55 times more volatile than Canadian Western Bank. It trades about 0.09 of its total potential returns per unit of risk. Canadian Western Bank is currently generating about 0.37 per unit of volatility. If you would invest  5,159  in Canadian Western Bank on September 5, 2024 and sell it today you would earn a total of  1,010  from holding Canadian Western Bank or generate 19.58% return on investment over 90 days.

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

TFI International  vs.  Canadian Western Bank

TFI International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TFI International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TFI International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Canadian Western Bank

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Western Bank are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Canadian Western displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TFI International and Canadian Western

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

The idea behind TFI International and Canadian Western Bank 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.