Correlation Between China Pharma and Aurora Cannabis

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

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

Diversification Opportunities for China Pharma and Aurora Cannabis

0.9

Correlation Coefficient

China Pharma  Aurora Cannabis

Almost no diversification

The 3 months correlation between China and Aurora is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding China Pharma Holdings and Aurora Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Cannabis and China Pharma 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 China Pharma Holdings are associated (or correlated) with Aurora Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Cannabis has no effect on the direction of China Pharma i.e., China Pharma and Aurora Cannabis go up and down completely randomly.

Pair Corralation between China Pharma and Aurora Cannabis

Given the investment horizon of 90 days China Pharma Holdings is expected to generate 2.66 times more return on investment than Aurora Cannabis. However, China Pharma is 2.66 times more volatile than Aurora Cannabis. It trades about -0.03 of its potential returns per unit of risk. Aurora Cannabis is currently generating about -0.13 per unit of risk. If you would invest  20.00  in China Pharma Holdings on October 1, 2024 and sell it today you would lose (1.69) from holding China Pharma Holdings or give up 8.45% of portfolio value over 90 days.

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

China Pharma Holdings  vs.  Aurora Cannabis

China Pharma Holdings

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days China Pharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Aurora Cannabis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Pharma and Aurora Cannabis

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

The idea behind China Pharma Holdings and Aurora 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.

Check out your portfolio center.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.