Correlation Between Canadian National and GMxico Transportes

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

Diversification Opportunities for Canadian National and GMxico Transportes

0.01

Correlation Coefficient

Canadian National  GMxico Transportes

Significant diversification

The 3 months correlation between Canadian and GMxico is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and GMxico Transportes SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMxico Transportes SAB 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 GMxico Transportes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMxico Transportes SAB has no effect on the direction of Canadian National i.e., Canadian National and GMxico Transportes go up and down completely randomly.

Pair Corralation between Canadian National and GMxico Transportes

Considering the 90-day investment horizon Canadian National is expected to generate 14.15 times less return on investment than GMxico Transportes. But when comparing it to its historical volatility, Canadian National Railway is 3.36 times less risky than GMxico Transportes. It trades about 0.03 of its potential returns per unit of risk. GMxico Transportes SAB is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  27.00  in GMxico Transportes SAB on February 16, 2024 and sell it today you would earn a total of  198.00  from holding GMxico Transportes SAB or generate 733.33% return on investment over 90 days.

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

Canadian National Railway  vs.  GMxico Transportes SAB

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. Despite fairly strong basic indicators, Canadian National is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

GMxico Transportes SAB

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMxico Transportes SAB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, GMxico Transportes reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian National and GMxico Transportes

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

The idea behind Canadian National Railway and GMxico Transportes SAB 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.