Correlation Between Aurora Cannabis and Decibel Cannabis

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

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

Diversification Opportunities for Aurora Cannabis and Decibel Cannabis

0.12

Correlation Coefficient

Aurora Cannabis  Decibel Cannabis

Average diversification

The 3 months correlation between Aurora and Decibel is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Aurora Cannabis and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis and Aurora Cannabis 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 Aurora Cannabis are associated (or correlated) with Decibel Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decibel Cannabis has no effect on the direction of Aurora Cannabis i.e., Aurora Cannabis and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Aurora Cannabis and Decibel Cannabis

Assuming the 90 days trading horizon Aurora Cannabis is expected to generate 1.45 times more return on investment than Decibel Cannabis. However, Aurora Cannabis is 1.45 times more volatile than Decibel Cannabis. It trades about 0.05 of its potential returns per unit of risk. Decibel Cannabis is currently generating about 0.02 per unit of risk. If you would invest  603.00  in Aurora Cannabis on December 28, 2024 and sell it today you would earn a total of  57.00  from holding Aurora Cannabis or generate 9.45% return on investment over 90 days.

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

Aurora Cannabis  vs.  Decibel Cannabis

Aurora Cannabis

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora Cannabis are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Aurora Cannabis displayed solid returns over the last few months and may actually be approaching a breakup point.

Decibel Cannabis

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Decibel Cannabis are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Decibel Cannabis may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aurora Cannabis and Decibel Cannabis

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

The idea behind Aurora Cannabis and Decibel Cannabis 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.