Correlation Between Decibel Cannabis and Willow Biosciences

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

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

Diversification Opportunities for Decibel Cannabis and Willow Biosciences

-0.19

Correlation Coefficient

Decibel Cannabis  Willow Biosciences

Good diversification

The 3 months correlation between Decibel and Willow is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Decibel Cannabis and Willow Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Willow Biosciences and Decibel Cannabis 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 Decibel Cannabis are associated (or correlated) with Willow Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Willow Biosciences has no effect on the direction of Decibel Cannabis i.e., Decibel Cannabis and Willow Biosciences go up and down completely randomly.

Pair Corralation between Decibel Cannabis and Willow Biosciences

Assuming the 90 days horizon Decibel Cannabis is expected to under-perform the Willow Biosciences. In addition to that, Decibel Cannabis is 1.0 times more volatile than Willow Biosciences. It trades about -0.01 of its total potential returns per unit of risk. Willow Biosciences is currently generating about 0.03 per unit of volatility. If you would invest  5.70  in Willow Biosciences on September 12, 2024 and sell it today you would lose (0.30) from holding Willow Biosciences or give up 5.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

Decibel Cannabis  vs.  Willow Biosciences

Decibel Cannabis

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Decibel Cannabis are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Decibel Cannabis reported solid returns over the last few months and may actually be approaching a breakup point.

Willow Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Willow Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Decibel Cannabis and Willow Biosciences

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

The idea behind Decibel Cannabis and Willow Biosciences 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.