Correlation Between ESSA Pharma and Canopy Growth

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

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

Diversification Opportunities for ESSA Pharma and Canopy Growth

-0.74

Correlation Coefficient

ESSA Pharma  Canopy Growth

Pay attention - limited upside

The 3 months correlation between ESSA and Canopy is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma 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 ESSA Pharma 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 ESSA Pharma 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 ESSA Pharma i.e., ESSA Pharma and Canopy Growth go up and down completely randomly.

Pair Corralation between ESSA Pharma and Canopy Growth

Given the investment horizon of 90 days ESSA Pharma is expected to generate 228.53 times less return on investment than Canopy Growth. But when comparing it to its historical volatility, ESSA Pharma is 4.66 times less risky than Canopy Growth. It trades about 0.0 of its potential returns per unit of risk. Canopy Growth Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  903.00  in Canopy Growth Corp on February 23, 2024 and sell it today you would earn a total of  8.00  from holding Canopy Growth Corp or generate 0.89% return on investment over 90 days.

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

ESSA Pharma  vs.  Canopy Growth Corp

ESSA Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Canopy Growth Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canopy Growth Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Canopy Growth exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ESSA Pharma and Canopy Growth

The main advantage of trading using opposite ESSA Pharma and Canopy Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESSA Pharma 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 ESSA Pharma 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.