Correlation Between Greater Cannabis and PharmChem

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

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

Diversification Opportunities for Greater Cannabis and PharmChem

0.49

Correlation Coefficient

Greater Cannabis  PharmChem

Very weak diversification

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

Pair Corralation between Greater Cannabis and PharmChem

Given the investment horizon of 90 days Greater Cannabis is expected to generate 10.25 times more return on investment than PharmChem. However, Greater Cannabis is 10.25 times more volatile than PharmChem. It trades about 0.16 of its potential returns per unit of risk. PharmChem is currently generating about -0.17 per unit of risk. If you would invest  0.04  in Greater Cannabis on September 22, 2024 and sell it today you would earn a total of  0.01  from holding Greater Cannabis or generate 25.0% return on investment over 90 days.

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

Greater Cannabis  vs.  PharmChem

Greater Cannabis

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Greater Cannabis are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Greater Cannabis displayed solid returns over the last few months and may actually be approaching a breakup point.

PharmChem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PharmChem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, PharmChem is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Greater Cannabis and PharmChem

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

The idea behind Greater Cannabis and PharmChem 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.