Correlation Between China Pharma and Canopy Growth

Can any of the company-specific risk be diversified away by investing in both China Pharma 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 China Pharma and Canopy Growth 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 Canopy Growth Corp, you can compare the effects of market volatilities on China Pharma 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 China Pharma with a short position of Canopy Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Pharma and Canopy Growth.

Diversification Opportunities for China Pharma and Canopy Growth

0.8

Correlation Coefficient

China Pharma  Canopy Growth

Very poor diversification

The 3 months correlation between China and Canopy is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding China Pharma Holdings 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 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 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 China Pharma i.e., China Pharma and Canopy Growth go up and down completely randomly.

Pair Corralation between China Pharma and Canopy Growth

Given the investment horizon of 90 days China Pharma Holdings is expected to generate 2.05 times more return on investment than Canopy Growth. However, China Pharma is 2.05 times more volatile than Canopy Growth Corp. It trades about -0.03 of its potential returns per unit of risk. Canopy Growth Corp is currently generating about -0.48 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	Strong
Accuracy	100.0%
Values	Daily Returns

China Pharma Holdings  vs.  Canopy Growth Corp

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.

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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with China Pharma and Canopy Growth

The main advantage of trading using opposite China Pharma and Canopy Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Pharma 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 China Pharma Holdings 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.