Correlation Between Union Pacific and Canadian Pacific

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Can any of the company-specific risk be diversified away by investing in both Union Pacific 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 Union Pacific and Canadian Pacific 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 Pacific Railway, you can compare the effects of market volatilities on Union Pacific 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 Union Pacific with a short position of Canadian Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Pacific and Canadian Pacific.

Diversification Opportunities for Union Pacific and Canadian Pacific

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Union and Canadian is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific 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 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 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 Union Pacific i.e., Union Pacific and Canadian Pacific go up and down completely randomly.

Pair Corralation between Union Pacific and Canadian Pacific

Considering the 90-day investment horizon Union Pacific is expected to under-perform the Canadian Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Union Pacific is 1.52 times less risky than Canadian Pacific. The stock trades about -0.12 of its potential returns per unit of risk. The Canadian Pacific Railway is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,606  in Canadian Pacific Railway on December 29, 2023 and sell it today you would earn a total of  240.00  from holding Canadian Pacific Railway or generate 2.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

Union Pacific  vs.  Canadian Pacific Railway

 Performance 
       Timeline  
Union Pacific 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Union Pacific are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Pacific Railway 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Pacific Railway are ranked lower than 12 (%) 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 April 2024.

Union Pacific and Canadian Pacific Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Union Pacific and Canadian Pacific

The main advantage of trading using opposite Union Pacific and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Pacific 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 Union Pacific 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.
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 Transaction History module to view history of all your transactions and understand their impact on performance.

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