Correlation Between Canadian Solar and SolarEdge Technologies

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

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

Diversification Opportunities for Canadian Solar and SolarEdge Technologies

0.65

Correlation Coefficient

Canadian Solar  SolarEdge Technologies

Poor diversification

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

Pair Corralation between Canadian Solar and SolarEdge Technologies

Assuming the 90 days horizon Canadian Solar is expected to generate 0.77 times more return on investment than SolarEdge Technologies. However, Canadian Solar is 1.29 times less risky than SolarEdge Technologies. It trades about 0.01 of its potential returns per unit of risk. SolarEdge Technologies is currently generating about -0.05 per unit of risk. If you would invest  1,270  in Canadian Solar on September 13, 2024 and sell it today you would lose (57.00) from holding Canadian Solar or give up 4.49% of portfolio value over 90 days.

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

Canadian Solar  vs.  SolarEdge Technologies

Canadian Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Solar is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

SolarEdge Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SolarEdge Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Canadian Solar and SolarEdge Technologies

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

The idea behind Canadian Solar and SolarEdge Technologies 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .