Correlation Between Canopy Growth and Royalty PharmaPlc

Can any of the company-specific risk be diversified away by investing in both Canopy Growth and Royalty PharmaPlc 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 Royalty PharmaPlc 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 Royalty PharmaPlc, you can compare the effects of market volatilities on Canopy Growth and Royalty PharmaPlc 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 Royalty PharmaPlc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canopy Growth and Royalty PharmaPlc.

Diversification Opportunities for Canopy Growth and Royalty PharmaPlc

-0.7

Correlation Coefficient

Canopy Growth  Royalty PharmaPlc

Excellent diversification

The 3 months correlation between Canopy and Royalty is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Canopy Growth Corp and Royalty PharmaPlc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty PharmaPlc 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 Royalty PharmaPlc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty PharmaPlc has no effect on the direction of Canopy Growth i.e., Canopy Growth and Royalty PharmaPlc go up and down completely randomly.

Pair Corralation between Canopy Growth and Royalty PharmaPlc

Considering the 90-day investment horizon Canopy Growth Corp is expected to generate 18.36 times more return on investment than Royalty PharmaPlc. However, Canopy Growth is 18.36 times more volatile than Royalty PharmaPlc. It trades about 0.13 of its potential returns per unit of risk. Royalty PharmaPlc is currently generating about -0.05 per unit of risk. If you would invest  785.00  in Canopy Growth Corp on February 21, 2024 and sell it today you would earn a total of  228.00  from holding Canopy Growth Corp or generate 29.04% return on investment over 90 days.

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

Canopy Growth Corp  vs.  Royalty PharmaPlc

Canopy Growth Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canopy Growth Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Canopy Growth exhibited solid returns over the last few months and may actually be approaching a breakup point.

Royalty PharmaPlc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royalty PharmaPlc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Canopy Growth and Royalty PharmaPlc

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

The idea behind Canopy Growth Corp and Royalty PharmaPlc 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.