Correlation Between Canadian National and MTRLimited

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

Diversification Opportunities for Canadian National and MTRLimited

0.61

Correlation Coefficient

Canadian National  MTRLimited

Poor diversification

The 3 months correlation between Canadian and MTRLimited is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and MTR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Limited 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 MTRLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Limited has no effect on the direction of Canadian National i.e., Canadian National and MTRLimited go up and down completely randomly.

Pair Corralation between Canadian National and MTRLimited

Assuming the 90 days horizon Canadian National is expected to generate 6.48 times less return on investment than MTRLimited. But when comparing it to its historical volatility, Canadian National Railway is 1.02 times less risky than MTRLimited. It trades about 0.01 of its potential returns per unit of risk. MTR Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  281.00  in MTR Limited on April 22, 2025 and sell it today you would earn a total of  19.00  from holding MTR Limited or generate 6.76% return on investment over 90 days.

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

Canadian National Railway  vs.  MTR Limited

Canadian National Railway

Risk-Adjusted Performance

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 nearly stable basic indicators, Canadian National is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

MTR Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MTRLimited may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Canadian National and MTRLimited

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

The idea behind Canadian National Railway and MTR Limited 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.