Correlation Between Medical Marijuana and General Cannabis

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

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

Diversification Opportunities for Medical Marijuana and General Cannabis

0.76

Correlation Coefficient

Medical Marijuana  General Cannabis

Poor diversification

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

Pair Corralation between Medical Marijuana and General Cannabis

Given the investment horizon of 90 days Medical Marijuana I is expected to under-perform the General Cannabis. In addition to that, Medical Marijuana is 1.35 times more volatile than General Cannabis Corp. It trades about -0.09 of its total potential returns per unit of risk. General Cannabis Corp is currently generating about -0.08 per unit of volatility. If you would invest  6.55  in General Cannabis Corp on September 25, 2024 and sell it today you would lose (4.29) from holding General Cannabis Corp or give up 65.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Medical Marijuana I  vs.  General Cannabis Corp

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.

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.

Pair Trading with Medical Marijuana and General Cannabis

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

The idea behind Medical Marijuana I and General Cannabis 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.