Correlation Between LB Foster and Canadian National

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

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

Diversification Opportunities for LB Foster and Canadian National

0.01

Correlation Coefficient

LB Foster  Canadian National

Significant diversification

The 3 months correlation between FSTR and Canadian is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway and LB Foster 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 LB Foster are associated (or correlated) with Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of LB Foster i.e., LB Foster and Canadian National go up and down completely randomly.

Pair Corralation between LB Foster and Canadian National

Given the investment horizon of 90 days LB Foster is expected to generate 3.52 times more return on investment than Canadian National. However, LB Foster is 3.52 times more volatile than Canadian National Railway. It trades about 0.22 of its potential returns per unit of risk. Canadian National Railway is currently generating about 0.12 per unit of risk. If you would invest  2,340  in LB Foster on March 2, 2024 and sell it today you would earn a total of  373.00  from holding LB Foster or generate 15.94% return on investment over 90 days.

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

LB Foster  vs.  Canadian National Railway

LB Foster

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Canadian National Railway

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Canadian National is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with LB Foster and Canadian National

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

The idea behind LB Foster and Canadian National 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.