Correlation Between Canopy Growth and Decibel Cannabis

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

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

Diversification Opportunities for Canopy Growth and Decibel Cannabis

-0.22

Correlation Coefficient

Canopy Growth  Decibel Cannabis

Very good diversification

The 3 months correlation between Canopy and Decibel is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Canopy Growth Corp and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis and Canopy Growth 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 Canopy Growth Corp are associated (or correlated) with Decibel Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decibel Cannabis has no effect on the direction of Canopy Growth i.e., Canopy Growth and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Canopy Growth and Decibel Cannabis

Assuming the 90 days trading horizon Canopy Growth Corp is expected to under-perform the Decibel Cannabis. But the stock apears to be less risky and, when comparing its historical volatility, Canopy Growth Corp is 1.45 times less risky than Decibel Cannabis. The stock trades about -0.11 of its potential returns per unit of risk. The Decibel Cannabis is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7.50  in Decibel Cannabis on September 19, 2024 and sell it today you would lose (0.50) from holding Decibel Cannabis or give up 6.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Canopy Growth Corp  vs.  Decibel Cannabis

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 abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Decibel Cannabis

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Decibel Cannabis are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Decibel Cannabis may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canopy Growth and Decibel Cannabis

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

The idea behind Canopy Growth Corp and Decibel Cannabis 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.