Correlation Between Union Pacific and Canadian National

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

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

Diversification Opportunities for Union Pacific and Canadian National

0.23

Correlation Coefficient

Union Pacific  Canadian National

Modest diversification

The 3 months correlation between Union and Canadian is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway and Union 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 Union Pacific are associated (or correlated) with Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of Union Pacific i.e., Union Pacific and Canadian National go up and down completely randomly.

Pair Corralation between Union Pacific and Canadian National

Considering the 90-day investment horizon Union Pacific is expected to generate 0.69 times more return on investment than Canadian National. However, Union Pacific is 1.46 times less risky than Canadian National. It trades about -0.19 of its potential returns per unit of risk. Canadian National Railway is currently generating about -0.2 per unit of risk. If you would invest  24,069  in Union Pacific on January 26, 2024 and sell it today you would lose (871.00) from holding Union Pacific or give up 3.62% of portfolio value over 90 days.

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

Union Pacific  vs.  Canadian National Railway

Union Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

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 current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Union Pacific and Canadian National

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

The idea behind Union Pacific and Canadian National 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.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.