Correlation Between Canadian Pacific and MTR Corp

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

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

Diversification Opportunities for Canadian Pacific and MTR Corp

-0.46

Correlation Coefficient

Canadian Pacific  MTR Corp

Very good diversification

The 3 months correlation between Canadian and MTR is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Pacific Railway and MTR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Corp and Canadian Pacific 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 Pacific Railway are associated (or correlated) with MTR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Corp has no effect on the direction of Canadian Pacific i.e., Canadian Pacific and MTR Corp go up and down completely randomly.

Pair Corralation between Canadian Pacific and MTR Corp

Allowing for the 90-day total investment horizon Canadian Pacific Railway is expected to under-perform the MTR Corp. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Pacific Railway is 1.29 times less risky than MTR Corp. The stock trades about -0.16 of its potential returns per unit of risk. The MTR Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  317.00  in MTR Corp on January 26, 2024 and sell it today you would earn a total of  0.00  from holding MTR Corp or generate 0.0% return on investment over 90 days.

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

Canadian Pacific Railway  vs.  MTR Corp

Canadian Pacific Railway

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Pacific Railway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Canadian Pacific is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

MTR Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, MTR Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Canadian Pacific and MTR Corp

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

The idea behind Canadian Pacific Railway and MTR 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.