Correlation Between CubicFarm Systems and CEA Industries

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

By analyzing existing cross correlation between CubicFarm Systems Corp and CEA Industries Warrant, you can compare the effects of market volatilities on CubicFarm Systems and CEA Industries 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 CubicFarm Systems with a short position of CEA Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of CubicFarm Systems and CEA Industries.

Diversification Opportunities for CubicFarm Systems and CEA Industries

0.35

Correlation Coefficient

CubicFarm Systems  CEA Industries

Weak diversification

The 3 months correlation between CubicFarm and CEA is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding CubicFarm Systems Corp and CEA Industries Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries Warrant and CubicFarm Systems 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 CubicFarm Systems Corp are associated (or correlated) with CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries Warrant has no effect on the direction of CubicFarm Systems i.e., CubicFarm Systems and CEA Industries go up and down completely randomly.

Pair Corralation between CubicFarm Systems and CEA Industries

Assuming the 90 days horizon CubicFarm Systems Corp is expected to generate 2.18 times more return on investment than CEA Industries. However, CubicFarm Systems is 2.18 times more volatile than CEA Industries Warrant. It trades about 0.17 of its potential returns per unit of risk. CEA Industries Warrant is currently generating about 0.14 per unit of risk. If you would invest  5.00  in CubicFarm Systems Corp on December 28, 2024 and sell it today you would earn a total of  14.00  from holding CubicFarm Systems Corp or generate 280.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	70.0%
Values	Daily Returns

CubicFarm Systems Corp  vs.  CEA Industries Warrant

CubicFarm Systems Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CubicFarm Systems Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, CubicFarm Systems reported solid returns over the last few months and may actually be approaching a breakup point.

CEA Industries Warrant

Risk-Adjusted Performance

Good

Over the last 90 days CEA Industries Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unsteady fundamental indicators, CEA Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CubicFarm Systems and CEA Industries

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

The idea behind CubicFarm Systems Corp and CEA Industries Warrant 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.