Correlation Between Deckers Outdoor and Rocky Brands

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

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

Diversification Opportunities for Deckers Outdoor and Rocky Brands

0.08

Correlation Coefficient

Deckers Outdoor  Rocky Brands

Significant diversification

The 3 months correlation between Deckers and Rocky is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Deckers Outdoor and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands and Deckers Outdoor 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 Deckers Outdoor are associated (or correlated) with Rocky Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Brands has no effect on the direction of Deckers Outdoor i.e., Deckers Outdoor and Rocky Brands go up and down completely randomly.

Pair Corralation between Deckers Outdoor and Rocky Brands

Given the investment horizon of 90 days Deckers Outdoor is expected to under-perform the Rocky Brands. In addition to that, Deckers Outdoor is 1.55 times more volatile than Rocky Brands. It trades about -0.4 of its total potential returns per unit of risk. Rocky Brands is currently generating about -0.36 per unit of volatility. If you would invest  2,579  in Rocky Brands on November 29, 2024 and sell it today you would lose (579.00) from holding Rocky Brands or give up 22.45% of portfolio value over 90 days.

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

Deckers Outdoor  vs.  Rocky Brands

Deckers Outdoor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Deckers Outdoor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Rocky Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rocky Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Rocky Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Deckers Outdoor and Rocky Brands

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

The idea behind Deckers Outdoor and Rocky Brands 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.