Correlation Between Canopy Growth and Modine Manufacturing

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

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

Diversification Opportunities for Canopy Growth and Modine Manufacturing

0.02

Correlation Coefficient

Canopy Growth  Modine Manufacturing

Significant diversification

The 3 months correlation between Canopy and Modine is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Canopy Growth Corp and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing and Canopy Growth 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 Canopy Growth Corp are associated (or correlated) with Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of Canopy Growth i.e., Canopy Growth and Modine Manufacturing go up and down completely randomly.

Pair Corralation between Canopy Growth and Modine Manufacturing

Considering the 90-day investment horizon Canopy Growth Corp is expected to under-perform the Modine Manufacturing. In addition to that, Canopy Growth is 1.54 times more volatile than Modine Manufacturing. It trades about -0.43 of its total potential returns per unit of risk. Modine Manufacturing is currently generating about 0.32 per unit of volatility. If you would invest  11,748  in Modine Manufacturing on October 23, 2024 and sell it today you would earn a total of  1,532  from holding Modine Manufacturing or generate 13.04% return on investment over 90 days.

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

Canopy Growth Corp  vs.  Modine Manufacturing

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 inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Modine Manufacturing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Modine Manufacturing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Modine Manufacturing may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Canopy Growth and Modine Manufacturing

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

The idea behind Canopy Growth Corp and Modine Manufacturing 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.