Correlation Between Broadwind and Canon

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

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

Diversification Opportunities for Broadwind and Canon

0.03

Correlation Coefficient

Broadwind  Canon

Significant diversification

The 3 months correlation between Broadwind and Canon is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Broadwind and Canon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canon Inc and Broadwind 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 Broadwind are associated (or correlated) with Canon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canon Inc has no effect on the direction of Broadwind i.e., Broadwind and Canon go up and down completely randomly.

Pair Corralation between Broadwind and Canon

Assuming the 90 days trading horizon Broadwind is expected to generate 3.02 times more return on investment than Canon. However, Broadwind is 3.02 times more volatile than Canon Inc. It trades about 0.1 of its potential returns per unit of risk. Canon Inc is currently generating about -0.05 per unit of risk. If you would invest  163.00  in Broadwind on October 17, 2024 and sell it today you would earn a total of  10.00  from holding Broadwind or generate 6.13% return on investment over 90 days.

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

Broadwind  vs.  Canon Inc

Broadwind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadwind has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Broadwind is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canon Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canon is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Broadwind and Canon

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

The idea behind Broadwind and Canon Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.