Correlation Between Canadian Life and POET Technologies

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

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

Diversification Opportunities for Canadian Life and POET Technologies

0.51

Correlation Coefficient

Canadian Life  POET Technologies

Very weak diversification

The 3 months correlation between Canadian and POET is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Life Companies and POET Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POET Technologies and Canadian Life 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 Life Companies are associated (or correlated) with POET Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POET Technologies has no effect on the direction of Canadian Life i.e., Canadian Life and POET Technologies go up and down completely randomly.

Pair Corralation between Canadian Life and POET Technologies

Assuming the 90 days trading horizon Canadian Life Companies is expected to under-perform the POET Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Life Companies is 2.94 times less risky than POET Technologies. The stock trades about -0.05 of its potential returns per unit of risk. The POET Technologies is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  693.00  in POET Technologies on December 1, 2024 and sell it today you would lose (114.00) from holding POET Technologies or give up 16.45% of portfolio value over 90 days.

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

Canadian Life Companies  vs.  POET Technologies

Canadian Life Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Life Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

POET Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days POET Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, POET Technologies is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Canadian Life and POET Technologies

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

The idea behind Canadian Life Companies and POET 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.