Correlation Between Tilray and Canopy Growth

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

By analyzing existing cross correlation between Tilray Inc and Canopy Growth Corp, you can compare the effects of market volatilities on Tilray and Canopy Growth 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 Tilray with a short position of Canopy Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tilray and Canopy Growth.

Diversification Opportunities for Tilray and Canopy Growth

0.8

Correlation Coefficient

Tilray  Canopy Growth

Very poor diversification

The 3 months correlation between Tilray and Canopy is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Tilray Inc and Canopy Growth Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canopy Growth Corp and Tilray 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 Tilray Inc are associated (or correlated) with Canopy Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canopy Growth Corp has no effect on the direction of Tilray i.e., Tilray and Canopy Growth go up and down completely randomly.

Pair Corralation between Tilray and Canopy Growth

Given the investment horizon of 90 days Tilray Inc is expected to under-perform the Canopy Growth. But the stock apears to be less risky and, when comparing its historical volatility, Tilray Inc is 1.62 times less risky than Canopy Growth. The stock trades about -0.1 of its potential returns per unit of risk. The Canopy Growth Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  504.00  in Canopy Growth Corp on September 2, 2024 and sell it today you would lose (117.00) from holding Canopy Growth Corp or give up 23.21% of portfolio value over 90 days.

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

Tilray Inc  vs.  Canopy Growth Corp

Tilray Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tilray Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Canopy Growth Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canopy Growth Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tilray and Canopy Growth

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

The idea behind Tilray Inc and Canopy Growth Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.