Correlation Between CSX and Canadian Pacific

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

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

Diversification Opportunities for CSX and Canadian Pacific

0.7

Correlation Coefficient

CSX  Canadian Pacific

Poor diversification

The 3 months correlation between CSX and Canadian is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding CSX Corp. and Canadian Pacific Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Pacific Railway and CSX 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 CSX Corporation are associated (or correlated) with Canadian Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Pacific Railway has no effect on the direction of CSX i.e., CSX and Canadian Pacific go up and down completely randomly.

Pair Corralation between CSX and Canadian Pacific

Considering the 90-day investment horizon CSX Corporation is expected to under-perform the Canadian Pacific. In addition to that, CSX is 1.03 times more volatile than Canadian Pacific Railway. It trades about -0.43 of its total potential returns per unit of risk. Canadian Pacific Railway is currently generating about -0.31 per unit of volatility. If you would invest  8,953  in Canadian Pacific Railway on January 20, 2024 and sell it today you would lose (559.00) from holding Canadian Pacific Railway or give up 6.24% of portfolio value over 90 days.

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

CSX Corp.  vs.  Canadian Pacific Railway

CSX Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSX Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, CSX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Canadian Pacific Railway

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Pacific Railway are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Canadian Pacific may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with CSX and Canadian Pacific

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

The idea behind CSX Corporation and Canadian Pacific Railway 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .