Correlation Between River Oak and Rock Oak

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

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

Diversification Opportunities for River Oak and Rock Oak

0.73

Correlation Coefficient

River Oak  Rock Oak

Poor diversification

The 3 months correlation between River and Rock is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding River Oak Discovery and Rock Oak E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rock Oak E and River Oak 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 River Oak Discovery are associated (or correlated) with Rock Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rock Oak E has no effect on the direction of River Oak i.e., River Oak and Rock Oak go up and down completely randomly.

Pair Corralation between River Oak and Rock Oak

Assuming the 90 days horizon River Oak Discovery is expected to under-perform the Rock Oak. In addition to that, River Oak is 1.28 times more volatile than Rock Oak E. It trades about -0.08 of its total potential returns per unit of risk. Rock Oak E is currently generating about -0.02 per unit of volatility. If you would invest  1,924  in Rock Oak E on December 28, 2024 and sell it today you would lose (28.00) from holding Rock Oak E or give up 1.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

River Oak Discovery  vs.  Rock Oak E

River Oak Discovery

Risk-Adjusted Performance

Very Weak

Over the last 90 days River Oak Discovery has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, River Oak is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rock Oak E

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rock Oak E has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Rock Oak is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with River Oak and Rock Oak

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

The idea behind River Oak Discovery and Rock Oak E 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.