Correlation Between TMX Group and Canadian Pacific

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

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

Diversification Opportunities for TMX Group and Canadian Pacific

0.07

Correlation Coefficient

TMX Group  Canadian Pacific

Significant diversification

The 3 months correlation between TMX and Canadian is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited 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 TMX Group 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 TMX Group Limited 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 TMX Group i.e., TMX Group and Canadian Pacific go up and down completely randomly.

Pair Corralation between TMX Group and Canadian Pacific

Given the investment horizon of 90 days TMX Group Limited is expected to under-perform the Canadian Pacific. But the stock apears to be less risky and, when comparing its historical volatility, TMX Group Limited is 1.02 times less risky than Canadian Pacific. The stock trades about -0.11 of its potential returns per unit of risk. The Canadian Pacific Railway is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  10,801  in Canadian Pacific Railway on June 30, 2025 and sell it today you would lose (554.00) from holding Canadian Pacific Railway or give up 5.13% of portfolio value over 90 days.

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

TMX Group Limited  vs.  Canadian Pacific Railway

TMX Group Limited

Risk-Adjusted Performance

Weakest

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

Canadian Pacific Railway

Risk-Adjusted Performance

Weakest

Over the last 90 days Canadian Pacific Railway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Pacific is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with TMX Group and Canadian Pacific

The main advantage of trading using opposite TMX Group and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMX Group 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 TMX Group Limited 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.