Correlation Between Air Canada and Canopy Growth

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

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

Diversification Opportunities for Air Canada and Canopy Growth

-0.49

Correlation Coefficient

Air Canada  Canopy Growth

Very good diversification

The 3 months correlation between Air and Canopy is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Canopy Growth Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canopy Growth Corp and Air Canada 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 Air Canada are associated (or correlated) with Canopy Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canopy Growth Corp has no effect on the direction of Air Canada i.e., Air Canada and Canopy Growth go up and down completely randomly.

Pair Corralation between Air Canada and Canopy Growth

Assuming the 90 days horizon Air Canada is expected to generate 0.54 times more return on investment than Canopy Growth. However, Air Canada is 1.85 times less risky than Canopy Growth. It trades about 0.18 of its potential returns per unit of risk. Canopy Growth Corp is currently generating about -0.1 per unit of risk. If you would invest  1,645  in Air Canada on September 24, 2024 and sell it today you would earn a total of  551.00  from holding Air Canada or generate 33.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Air Canada  vs.  Canopy Growth Corp

Air Canada

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Air Canada displayed solid returns over the last few months and may actually be approaching a breakup point.

Canopy Growth Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Air Canada and Canopy Growth

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

The idea behind Air Canada and Canopy Growth Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.