Correlation Between Canopy Growth and First Trust

Can any of the company-specific risk be diversified away by investing in both Canopy Growth and First Trust 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 First Trust 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 First Trust NASDAQ, you can compare the effects of market volatilities on Canopy Growth and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canopy Growth and First Trust.

Diversification Opportunities for Canopy Growth and First Trust

-0.48

Correlation Coefficient

Canopy Growth  First Trust

Very good diversification

The 3 months correlation between Canopy and First is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Canopy Growth Corp and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of Canopy Growth i.e., Canopy Growth and First Trust go up and down completely randomly.

Pair Corralation between Canopy Growth and First Trust

Considering the 90-day investment horizon Canopy Growth Corp is expected to under-perform the First Trust. In addition to that, Canopy Growth is 2.26 times more volatile than First Trust NASDAQ. It trades about -0.31 of its total potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.06 per unit of volatility. If you would invest  3,481  in First Trust NASDAQ on October 6, 2024 and sell it today you would earn a total of  140.00  from holding First Trust NASDAQ or generate 4.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Canopy Growth Corp  vs.  First Trust NASDAQ

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 uncertain 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.

First Trust NASDAQ

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, First Trust is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Canopy Growth and First Trust

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

The idea behind Canopy Growth Corp and First Trust NASDAQ 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.