Correlation Between Canaan and First Solar

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

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

Diversification Opportunities for Canaan and First Solar

-0.52

Correlation Coefficient

Canaan  First Solar

Excellent diversification

The 3 months correlation between Canaan and First is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Canaan Inc and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar and Canaan 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 Canaan Inc are associated (or correlated) with First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of Canaan i.e., Canaan and First Solar go up and down completely randomly.

Pair Corralation between Canaan and First Solar

Considering the 90-day investment horizon Canaan Inc is expected to generate 3.09 times more return on investment than First Solar. However, Canaan is 3.09 times more volatile than First Solar. It trades about 0.19 of its potential returns per unit of risk. First Solar is currently generating about -0.14 per unit of risk. If you would invest  94.00  in Canaan Inc on September 22, 2024 and sell it today you would earn a total of  138.00  from holding Canaan Inc or generate 146.81% return on investment over 90 days.

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

Canaan Inc  vs.  First Solar

Canaan Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canaan Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Canaan displayed solid returns over the last few months and may actually be approaching a breakup point.

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's essential indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Canaan and First Solar

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

The idea behind Canaan Inc and First Solar 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.