Correlation Between Maple Leaf and NeuPath Health

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

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

Diversification Opportunities for Maple Leaf and NeuPath Health

-0.53

Correlation Coefficient

Maple Leaf  NeuPath Health

Excellent diversification

The 3 months correlation between Maple and NeuPath is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and NeuPath Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NeuPath Health and Maple Leaf 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 Maple Leaf Foods are associated (or correlated) with NeuPath Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NeuPath Health has no effect on the direction of Maple Leaf i.e., Maple Leaf and NeuPath Health go up and down completely randomly.

Pair Corralation between Maple Leaf and NeuPath Health

Assuming the 90 days trading horizon Maple Leaf is expected to generate 2.3 times less return on investment than NeuPath Health. But when comparing it to its historical volatility, Maple Leaf Foods is 1.59 times less risky than NeuPath Health. It trades about 0.12 of its potential returns per unit of risk. NeuPath Health is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  19.00  in NeuPath Health on October 23, 2024 and sell it today you would earn a total of  2.00  from holding NeuPath Health or generate 10.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Maple Leaf Foods  vs.  NeuPath Health

Maple Leaf Foods

Risk-Adjusted Performance

0 of 100

Very Weak

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

NeuPath Health

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NeuPath Health are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NeuPath Health showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Maple Leaf and NeuPath Health

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

The idea behind Maple Leaf Foods and NeuPath Health 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.