Correlation Between Cronos and Pudgy Penguins

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

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

Diversification Opportunities for Cronos and Pudgy Penguins

0.65

Correlation Coefficient

Cronos  Pudgy Penguins

Poor diversification

The 3 months correlation between Cronos and Pudgy is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cronos and Pudgy Penguins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pudgy Penguins and Cronos 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 Cronos are associated (or correlated) with Pudgy Penguins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pudgy Penguins has no effect on the direction of Cronos i.e., Cronos and Pudgy Penguins go up and down completely randomly.

Pair Corralation between Cronos and Pudgy Penguins

Assuming the 90 days trading horizon Cronos is expected to generate 5.52 times less return on investment than Pudgy Penguins. But when comparing it to its historical volatility, Cronos is 2.65 times less risky than Pudgy Penguins. It trades about 0.12 of its potential returns per unit of risk. Pudgy Penguins is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  0.73  in Pudgy Penguins on April 23, 2025 and sell it today you would earn a total of  2.36  from holding Pudgy Penguins or generate 322.65% return on investment over 90 days.

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

Cronos  vs.  Pudgy Penguins

Cronos

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cronos are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Cronos exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pudgy Penguins

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pudgy Penguins are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Pudgy Penguins exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cronos and Pudgy Penguins

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

The idea behind Cronos and Pudgy Penguins 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.