Correlation Between Medical Marijuana and Growlife

Can any of the company-specific risk be diversified away by investing in both Medical Marijuana and Growlife 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 Growlife 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 Growlife, you can compare the effects of market volatilities on Medical Marijuana and Growlife 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 Growlife. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medical Marijuana and Growlife.

Diversification Opportunities for Medical Marijuana and Growlife

0.53

Correlation Coefficient

Medical Marijuana  Growlife

Very weak diversification

The 3 months correlation between Medical and Growlife is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Medical Marijuana I and Growlife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growlife 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 Growlife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growlife has no effect on the direction of Medical Marijuana i.e., Medical Marijuana and Growlife go up and down completely randomly.

Pair Corralation between Medical Marijuana and Growlife

Given the investment horizon of 90 days Medical Marijuana I is expected to under-perform the Growlife. But the pink sheet apears to be less risky and, when comparing its historical volatility, Medical Marijuana I is 5.11 times less risky than Growlife. The pink sheet trades about -0.09 of its potential returns per unit of risk. The Growlife is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.03  in Growlife on September 25, 2024 and sell it today you would lose (0.02) from holding Growlife or give up 66.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Medical Marijuana I  vs.  Growlife

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.

Growlife

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Growlife are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Growlife unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Medical Marijuana and Growlife

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

The idea behind Medical Marijuana I and Growlife 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.