Correlation Between Desktop Metal and Canaan

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

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

Diversification Opportunities for Desktop Metal and Canaan

-0.5

Correlation Coefficient

Desktop Metal  Canaan

Very good diversification

The 3 months correlation between Desktop and Canaan is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and Canaan Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canaan Inc and Desktop Metal 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 Desktop Metal are associated (or correlated) with Canaan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canaan Inc has no effect on the direction of Desktop Metal i.e., Desktop Metal and Canaan go up and down completely randomly.

Pair Corralation between Desktop Metal and Canaan

Allowing for the 90-day total investment horizon Desktop Metal is expected to generate 981.53 times less return on investment than Canaan. But when comparing it to its historical volatility, Desktop Metal is 2.88 times less risky than Canaan. It trades about 0.0 of its potential returns per unit of risk. Canaan Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  91.00  in Canaan Inc on September 3, 2024 and sell it today you would earn a total of  121.00  from holding Canaan Inc or generate 132.97% return on investment over 90 days.

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

Desktop Metal  vs.  Canaan Inc

Desktop Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Desktop Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Desktop Metal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Canaan Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canaan Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Canaan displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Desktop Metal and Canaan

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

The idea behind Desktop Metal and Canaan Inc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.