Correlation Between NYSE Composite and Heritage Cannabis

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

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

Diversification Opportunities for NYSE Composite and Heritage Cannabis

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Correlation Coefficient

NYSE Composite  Heritage Cannabis

Pay attention - limited upside

The 3 months correlation between NYSE and Heritage is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Heritage Cannabis Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Cannabis and NYSE Composite 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 NYSE Composite are associated (or correlated) with Heritage Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Cannabis has no effect on the direction of NYSE Composite i.e., NYSE Composite and Heritage Cannabis go up and down completely randomly.

Pair Corralation between NYSE Composite and Heritage Cannabis

Assuming the 90 days trading horizon NYSE Composite is expected to generate 19.88 times less return on investment than Heritage Cannabis. But when comparing it to its historical volatility, NYSE Composite is 33.89 times less risky than Heritage Cannabis. It trades about 0.12 of its potential returns per unit of risk. Heritage Cannabis Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.91  in Heritage Cannabis Holdings on October 8, 2024 and sell it today you would lose (0.77) from holding Heritage Cannabis Holdings or give up 84.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	69.44%
Values	Daily Returns

NYSE Composite  vs.  Heritage Cannabis Holdings

Pair Trading with NYSE Composite and Heritage Cannabis

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

The idea behind NYSE Composite and Heritage Cannabis Holdings 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.