Correlation Between American Green and Rocky Mountain

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

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

Diversification Opportunities for American Green and Rocky Mountain

0.45

Correlation Coefficient

American Green  Rocky Mountain

Very weak diversification

The 3 months correlation between American and Rocky is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Green and Rocky Mountain High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain High and American Green 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 American Green are associated (or correlated) with Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain High has no effect on the direction of American Green i.e., American Green and Rocky Mountain go up and down completely randomly.

Pair Corralation between American Green and Rocky Mountain

Given the investment horizon of 90 days American Green is expected to generate 1.58 times more return on investment than Rocky Mountain. However, American Green is 1.58 times more volatile than Rocky Mountain High. It trades about 0.01 of its potential returns per unit of risk. Rocky Mountain High is currently generating about 0.01 per unit of risk. If you would invest  0.05  in American Green on December 29, 2024 and sell it today you would lose (0.02) from holding American Green or give up 40.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

American Green  vs.  Rocky Mountain High

American Green

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Green are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental drivers, American Green sustained solid returns over the last few months and may actually be approaching a breakup point.

Rocky Mountain High

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Rocky Mountain may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American Green and Rocky Mountain

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

The idea behind American Green and Rocky Mountain High 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.