What is the correlation between CNR & CP?

Correlation between CNR and CP stock: 1-Year vs 5-Year Trends

Analyzing the correlation between cnr and cp stock helps investors understand sector trends and manage portfolio risk effectively. Evaluating how these major rail equities move together prevents unintended asset concentration. Discover the statistical relationship between these transport giants to optimize your long-term investment strategy.

Understanding the Mathematical Relationship Between CNR and CP

Evaluating the correlation between cnr and cp stock reveals a complex statistical relationship that is highly dependent on your chosen investment timeframe. The correlation coefficient between Canadian National Railway and Canadian Pacific Kansas City fluctuates remarkably over different horizons. This variance confuses investors constantly because the answer is nuance-dependent and changes across distinct economic cycles. Understanding this shifting dynamic is the first step to making an informed portfolio management decision.

Look, this isnt a static equation. The long-term, all-time correlation coefficient between these two rail giants sits at 0.59, representing a moderate directional relationship. However, if we isolate the trailing 12 months, that statistical bond strengthens to 0.73. This variation indicates that while they share broad economic drivers over multi-decade cycles, their short-term equity trajectories can deviate aggressively based on independent strategic initiatives, operational efficiency, and regional supply chain shocks.

Macroeconomic Drivers and Structural Differences

The underlying business architecture of each company fundamentally alters how macroeconomic impulses filter down to their stock prices. Canadian National Railway operates a mature, deeply established three-coast logistics network spanning across Canada, the United States Midwest, and down to the Gulf of Mexico. This broad footprint provides a natural structural shield during localized regional downturns. In contrast, Canadian Pacific has completely transformed its profile into a high-growth transnational engine following its 2023 cross-border merger, creating the only unified single-line railway connecting Canada, the United States, and Mexico.

The correlation often breaks down during periods of high market volatility or major regulatory shifts. For example, during intensive integration phases, the market values Canadian Pacific primarily on cross-border nearshoring growth and merger synergy execution. Meanwhile, the market rewards Canadian National Railway for its superior free cash flow generation and consistent dividend track record. These diverging paths create distinct rolling tracking errors. If you hold both, you are exposed to the same structural tailwinds of North American industrial trade, but you face entirely different operational execution risks.

Portfolio Diversification and the Sharpe Ratio Metric

Does holding both rail giants offer true diversification benefits? When I first built an industrials-focused allocation, I assumed owning both was redundant boilerplate that would drag down my returns - it felt like buying the exact same business twice. But after my first major industrial sector refactor, I was sold. Tracking the historical metrics taught me that because their cnr vs cp stock correlation shifts down to 0.62 or lower in specific market environments, holding a combined position actually smooths out volatile drawdowns. It behaves like a balanced scale between steady yield and aggressive network expansion.

Analyzing risk-adjusted returns highlights this strategic interplay perfectly. Canadian National Railway currently carries a stellar Sharpe Ratio of 1.70, reflecting highly efficient return generation per unit of absolute risk over the trailing year. On the flip side, Canadian Pacific posts a trailing Sharpe Ratio of 0.92, heavily impacted by higher integration costs and a wider trailing one-month volatility of 5.97% compared to Canadian Nationals tight 5.04%. By combining these structural positions, a portfolio manager captures Canadian Nationals immediate stability while retaining long-term exposure to Canadian Pacifics cross-border trade boom.

CNR vs CP: Core Statistical and Performance Breakdown

Canadian National Railway (CNR) ⭐

1. 0.73 correlation to its rail peer, demonstrating tighter short-term alignment
2. 0.59 correlation coefficient, confirming substantial historical independent movement
3. Lower trailing monthly volatility of 5.04% alongside a strong 1.70 Sharpe Ratio
4. Higher current yield at 2.13% with a three-decade continuous growth streak

Canadian Pacific Kansas City (CP)

1. 0.73 tracking alignment over recent rolling macro cycles
2. 0.59 historical baseline, showing clear windows of individual price discovery
3. Elevated trailing monthly volatility at 5.97% due to merger integration headwinds
4. Lower current yield at 1.01% as capital is aggressively prioritized for network growth

Institutional Portfolio Realignment Strategy

An institutional fund manager oversaw a massive industrial allocation heavily concentrated in Canadian rails. The team was deeply frustrated - high correlation tracking models suggested that holding a large joint block of both stocks was creating severe capital redundancy.

First attempt: The management team decided to liquidate their entire Canadian National position to chase the rapid growth potential of Canadian Pacific's cross-border line. Result: The fund immediately suffered during an unexpected cyclical automotive freight slowdown, experiencing a brutal portfolio drawdown.

The breakthrough came when they profiled rolling correlation coefficients across different interest rate cycles. They realized the relationship naturally decouples during market stress when capital rapidly rotates toward stable balance sheets and safe cash flows.

They immediately rebalanced into a structured position split, stabilizing their tracking error. Within 12 months, the combined railway allocation delivered a balanced return profile, proving that real resilience requires holding both networks.