Correlation Between Trinity Industries and Canadian Pacific

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

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

Diversification Opportunities for Trinity Industries and Canadian Pacific

0.59

Correlation Coefficient

Trinity Industries  Canadian Pacific

Very weak diversification

The 3 months correlation between Trinity and Canadian is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Trinity Industries 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 Trinity Industries 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 Trinity Industries 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 Trinity Industries i.e., Trinity Industries and Canadian Pacific go up and down completely randomly.

Pair Corralation between Trinity Industries and Canadian Pacific

Considering the 90-day investment horizon Trinity Industries is expected to under-perform the Canadian Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Trinity Industries is 1.01 times less risky than Canadian Pacific. The stock trades about -0.25 of its potential returns per unit of risk. The Canadian Pacific Railway is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  7,682  in Canadian Pacific Railway on January 4, 2025 and sell it today you would lose (591.00) from holding Canadian Pacific Railway or give up 7.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Trinity Industries  vs.  Canadian Pacific Railway

Trinity Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trinity Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Canadian Pacific Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Pacific Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Trinity Industries and Canadian Pacific

The main advantage of trading using opposite Trinity Industries and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trinity Industries 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 Trinity Industries 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.