Correlation Between First Solar and Canadian Solar

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

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

Diversification Opportunities for First Solar and Canadian Solar

-0.47

Correlation Coefficient

First Solar  Canadian Solar

Very good diversification

The 3 months correlation between First and Canadian is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding First Solar and Canadian Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Solar and First Solar 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 First Solar are associated (or correlated) with Canadian Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Solar has no effect on the direction of First Solar i.e., First Solar and Canadian Solar go up and down completely randomly.

Pair Corralation between First Solar and Canadian Solar

Given the investment horizon of 90 days First Solar is expected to generate 1.08 times more return on investment than Canadian Solar. However, First Solar is 1.08 times more volatile than Canadian Solar. It trades about 0.43 of its potential returns per unit of risk. Canadian Solar is currently generating about 0.13 per unit of risk. If you would invest  18,083  in First Solar on February 28, 2024 and sell it today you would earn a total of  9,591  from holding First Solar or generate 53.04% return on investment over 90 days.

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

First Solar  vs.  Canadian Solar

First Solar

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Solar are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, First Solar reported solid returns over the last few months and may actually be approaching a breakup point.

Canadian Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with First Solar and Canadian Solar

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

The idea behind First Solar and Canadian Solar 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.