Correlation Between Canadian National and Canadian Tire

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

Diversification Opportunities for Canadian National and Canadian Tire

0.51

Correlation Coefficient

Canadian National  Canadian Tire

Very weak diversification

The 3 months correlation between Canadian and Canadian is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and Canadian Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Tire 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 Canadian Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Tire has no effect on the direction of Canadian National i.e., Canadian National and Canadian Tire go up and down completely randomly.

Pair Corralation between Canadian National and Canadian Tire

Assuming the 90 days trading horizon Canadian National is expected to generate 20.28 times less return on investment than Canadian Tire. In addition to that, Canadian National is 1.51 times more volatile than Canadian Tire. It trades about 0.01 of its total potential returns per unit of risk. Canadian Tire is currently generating about 0.45 per unit of volatility. If you would invest  14,619  in Canadian Tire on April 20, 2025 and sell it today you would earn a total of  4,485  from holding Canadian Tire or generate 30.68% return on investment over 90 days.

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

Canadian National Railway  vs.  Canadian Tire

Canadian National Railway

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian National Railway are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Canadian National is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Canadian Tire

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Tire are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Canadian Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian National and Canadian Tire

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

The idea behind Canadian National Railway and Canadian Tire 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.