Correlation Between Charlottes Web and Decibel Cannabis

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

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

Diversification Opportunities for Charlottes Web and Decibel Cannabis

0.04

Correlation Coefficient

Charlottes Web  Decibel Cannabis

Significant diversification

The 3 months correlation between Charlottes and Decibel is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Charlottes Web Holdings and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis and Charlottes Web 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 Charlottes Web Holdings 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 Charlottes Web i.e., Charlottes Web and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Charlottes Web and Decibel Cannabis

Assuming the 90 days horizon Charlottes Web Holdings is expected to under-perform the Decibel Cannabis. But the otc stock apears to be less risky and, when comparing its historical volatility, Charlottes Web Holdings is 1.78 times less risky than Decibel Cannabis. The otc stock trades about -0.06 of its potential returns per unit of risk. The Decibel Cannabis is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5.40  in Decibel Cannabis on September 20, 2024 and sell it today you would lose (0.79) from holding Decibel Cannabis or give up 14.63% of portfolio value over 90 days.

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

Charlottes Web Holdings  vs.  Decibel Cannabis

Charlottes Web Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charlottes Web Holdings 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 technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Decibel Cannabis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Decibel Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Decibel Cannabis is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Charlottes Web and Decibel Cannabis

The main advantage of trading using opposite Charlottes Web and Decibel Cannabis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charlottes Web 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 Charlottes Web Holdings 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.

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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.