Correlation Between General Cannabis and Medical Marijuana

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

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

Diversification Opportunities for General Cannabis and Medical Marijuana

0.76

Correlation Coefficient

General Cannabis  Medical Marijuana

Poor diversification

The 3 months correlation between General and Medical is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Cannabis Corp and Medical Marijuana I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Marijuana and General Cannabis 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 General Cannabis Corp are associated (or correlated) with Medical Marijuana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Marijuana has no effect on the direction of General Cannabis i.e., General Cannabis and Medical Marijuana go up and down completely randomly.

Pair Corralation between General Cannabis and Medical Marijuana

Given the investment horizon of 90 days General Cannabis Corp is expected to generate 0.65 times more return on investment than Medical Marijuana. However, General Cannabis Corp is 1.53 times less risky than Medical Marijuana. It trades about -0.09 of its potential returns per unit of risk. Medical Marijuana I is currently generating about -0.09 per unit of risk. If you would invest  4.41  in General Cannabis Corp on September 25, 2024 and sell it today you would lose (2.15) from holding General Cannabis Corp or give up 48.75% of portfolio value over 90 days.

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

General Cannabis Corp  vs.  Medical Marijuana I

General Cannabis Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Cannabis 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 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.

Medical Marijuana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Marijuana I has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat 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.

Pair Trading with General Cannabis and Medical Marijuana

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

The idea behind General Cannabis Corp and Medical Marijuana I 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.