Correlation Between Extendicare and Numinus Wellness

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

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

Diversification Opportunities for Extendicare and Numinus Wellness

0.44

Correlation Coefficient

Extendicare  Numinus Wellness

Very weak diversification

The 3 months correlation between Extendicare and Numinus is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Extendicare and Numinus Wellness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Numinus Wellness and Extendicare 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 Extendicare are associated (or correlated) with Numinus Wellness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Numinus Wellness has no effect on the direction of Extendicare i.e., Extendicare and Numinus Wellness go up and down completely randomly.

Pair Corralation between Extendicare and Numinus Wellness

Assuming the 90 days trading horizon Extendicare is expected to generate 1.19 times less return on investment than Numinus Wellness. But when comparing it to its historical volatility, Extendicare is 4.71 times less risky than Numinus Wellness. It trades about 0.16 of its potential returns per unit of risk. Numinus Wellness is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Numinus Wellness on December 4, 2024 and sell it today you would earn a total of  0.00  from holding Numinus Wellness or generate 0.0% return on investment over 90 days.

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

Extendicare  vs.  Numinus Wellness

Extendicare

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Extendicare are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Extendicare displayed solid returns over the last few months and may actually be approaching a breakup point.

Numinus Wellness

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Numinus Wellness are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Numinus Wellness displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Extendicare and Numinus Wellness

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

The idea behind Extendicare and Numinus Wellness 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.