Correlation Between American Green and Marijuana

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

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

Diversification Opportunities for American Green and Marijuana

-0.49

Correlation Coefficient

American Green  Marijuana

Very good diversification

The 3 months correlation between American and Marijuana is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding American Green and Marijuana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marijuana and American Green 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 American Green are associated (or correlated) with Marijuana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marijuana has no effect on the direction of American Green i.e., American Green and Marijuana go up and down completely randomly.

Pair Corralation between American Green and Marijuana

Given the investment horizon of 90 days American Green is expected to generate 1.32 times more return on investment than Marijuana. However, American Green is 1.32 times more volatile than Marijuana. It trades about 0.13 of its potential returns per unit of risk. Marijuana is currently generating about -0.13 per unit of risk. If you would invest  0.04  in American Green on September 12, 2024 and sell it today you would earn a total of  0.03  from holding American Green or generate 75.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

American Green  vs.  Marijuana

American Green

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Green are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, American Green sustained solid returns over the last few months and may actually be approaching a breakup point.

Marijuana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marijuana 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 basic 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 American Green and Marijuana

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

The idea behind American Green and Marijuana 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.