Correlation Between 4Front Ventures and Stem Holdings

Can any of the company-specific risk be diversified away by investing in both 4Front Ventures and Stem Holdings 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 4Front Ventures and Stem Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 4Front Ventures Corp and Stem Holdings, you can compare the effects of market volatilities on 4Front Ventures and Stem Holdings 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 4Front Ventures with a short position of Stem Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of 4Front Ventures and Stem Holdings.

Diversification Opportunities for 4Front Ventures and Stem Holdings

0.65

Correlation Coefficient

4Front Ventures  Stem Holdings

Poor diversification

The 3 months correlation between 4Front and Stem is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding 4Front Ventures Corp and Stem Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stem Holdings and 4Front Ventures 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 4Front Ventures Corp are associated (or correlated) with Stem Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stem Holdings has no effect on the direction of 4Front Ventures i.e., 4Front Ventures and Stem Holdings go up and down completely randomly.

Pair Corralation between 4Front Ventures and Stem Holdings

Assuming the 90 days horizon 4Front Ventures is expected to generate 9.54 times less return on investment than Stem Holdings. But when comparing it to its historical volatility, 4Front Ventures Corp is 7.03 times less risky than Stem Holdings. It trades about 0.09 of its potential returns per unit of risk. Stem Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Stem Holdings on December 27, 2024 and sell it today you would earn a total of  0.01  from holding Stem Holdings or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

4Front Ventures Corp  vs.  Stem Holdings

4Front Ventures Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in 4Front Ventures Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, 4Front Ventures reported solid returns over the last few months and may actually be approaching a breakup point.

Stem Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stem Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile primary indicators, Stem Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 4Front Ventures and Stem Holdings

The main advantage of trading using opposite 4Front Ventures and Stem Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 4Front Ventures position performs unexpectedly, Stem Holdings 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 Stem Holdings will offset losses from the drop in Stem Holdings' long position.

The idea behind 4Front Ventures Corp and Stem Holdings 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.