Correlation Between Canadian Solar and Vanguard Small

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

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

Diversification Opportunities for Canadian Solar and Vanguard Small

0.89

Correlation Coefficient

Canadian Solar  Vanguard Small

Very poor diversification

The 3 months correlation between Canadian and Vanguard is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Solar and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Canadian Solar 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 Canadian Solar are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Canadian Solar i.e., Canadian Solar and Vanguard Small go up and down completely randomly.

Pair Corralation between Canadian Solar and Vanguard Small

Given the investment horizon of 90 days Canadian Solar is expected to generate 3.77 times more return on investment than Vanguard Small. However, Canadian Solar is 3.77 times more volatile than Vanguard Small Cap Index. It trades about 0.14 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.21 per unit of risk. If you would invest  902.00  in Canadian Solar on April 30, 2025 and sell it today you would earn a total of  298.00  from holding Canadian Solar or generate 33.04% return on investment over 90 days.

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

Canadian Solar  vs.  Vanguard Small Cap Index

Canadian Solar

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Solar are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward indicators, Canadian Solar reported solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Solar and Vanguard Small

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

The idea behind Canadian Solar and Vanguard Small Cap Index 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.