Correlation Between Canlan Ice and Canaf Investments

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

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

Diversification Opportunities for Canlan Ice and Canaf Investments

-0.25

Correlation Coefficient

Canlan Ice  Canaf Investments

Very good diversification

The 3 months correlation between Canlan and Canaf is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Canlan Ice Sports and Canaf Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canaf Investments and Canlan Ice 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 Canlan Ice Sports are associated (or correlated) with Canaf Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canaf Investments has no effect on the direction of Canlan Ice i.e., Canlan Ice and Canaf Investments go up and down completely randomly.

Pair Corralation between Canlan Ice and Canaf Investments

Assuming the 90 days trading horizon Canlan Ice Sports is expected to under-perform the Canaf Investments. But the stock apears to be less risky and, when comparing its historical volatility, Canlan Ice Sports is 3.24 times less risky than Canaf Investments. The stock trades about -0.04 of its potential returns per unit of risk. The Canaf Investments is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Canaf Investments on December 29, 2024 and sell it today you would earn a total of  3.00  from holding Canaf Investments or generate 10.34% return on investment over 90 days.

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

Canlan Ice Sports  vs.  Canaf Investments

Canlan Ice Sports

Risk-Adjusted Performance

Very Weak

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

Canaf Investments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canaf Investments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Canaf Investments showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canlan Ice and Canaf Investments

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

The idea behind Canlan Ice Sports and Canaf Investments 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.