Correlation Between Green Thumb and China Pharma

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

By analyzing existing cross correlation between Green Thumb Industries and China Pharma Holdings, you can compare the effects of market volatilities on Green Thumb and China Pharma 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 Green Thumb with a short position of China Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Green Thumb and China Pharma.

Diversification Opportunities for Green Thumb and China Pharma

0.56

Correlation Coefficient

Green Thumb  China Pharma

Very weak diversification

The 3 months correlation between Green and China is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Green Thumb Industries and China Pharma Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pharma Holdings and Green Thumb 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 Green Thumb Industries are associated (or correlated) with China Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pharma Holdings has no effect on the direction of Green Thumb i.e., Green Thumb and China Pharma go up and down completely randomly.

Pair Corralation between Green Thumb and China Pharma

Assuming the 90 days horizon Green Thumb is expected to generate 17.77 times less return on investment than China Pharma. But when comparing it to its historical volatility, Green Thumb Industries is 1.59 times less risky than China Pharma. It trades about 0.0 of its potential returns per unit of risk. China Pharma Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  19.00  in China Pharma Holdings on September 3, 2024 and sell it today you would earn a total of  1.00  from holding China Pharma Holdings or generate 5.26% return on investment over 90 days.

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

Green Thumb Industries  vs.  China Pharma Holdings

Green Thumb Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Pharma Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Pharma Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, China Pharma demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Green Thumb and China Pharma

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

The idea behind Green Thumb Industries and China Pharma Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.