Correlation Between Canadian Tire and Labrador Iron

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

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

Diversification Opportunities for Canadian Tire and Labrador Iron

-0.08

Correlation Coefficient

Canadian Tire  Labrador Iron

Good diversification

The 3 months correlation between Canadian and Labrador is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Tire and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore and Canadian Tire 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 Tire are associated (or correlated) with Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of Canadian Tire i.e., Canadian Tire and Labrador Iron go up and down completely randomly.

Pair Corralation between Canadian Tire and Labrador Iron

Assuming the 90 days trading horizon Canadian Tire is expected to generate 0.85 times more return on investment than Labrador Iron. However, Canadian Tire is 1.18 times less risky than Labrador Iron. It trades about 0.36 of its potential returns per unit of risk. Labrador Iron Ore is currently generating about -0.12 per unit of risk. If you would invest  15,060  in Canadian Tire on May 3, 2025 and sell it today you would earn a total of  3,498  from holding Canadian Tire or generate 23.23% return on investment over 90 days.

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

Canadian Tire  vs.  Labrador Iron Ore

Canadian Tire

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Tire are ranked lower than 28 (%) 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.

Labrador Iron Ore

Risk-Adjusted Performance

Very Weak

Over the last 90 days Labrador Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Canadian Tire and Labrador Iron

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

The idea behind Canadian Tire and Labrador Iron Ore 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.