Correlation Between Rocky Mountain and Exchange Bankshares

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

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

Diversification Opportunities for Rocky Mountain and Exchange Bankshares

0.08

Correlation Coefficient

Rocky Mountain  Exchange Bankshares

Significant diversification

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

Pair Corralation between Rocky Mountain and Exchange Bankshares

Given the investment horizon of 90 days Rocky Mountain Chocolate is expected to under-perform the Exchange Bankshares. In addition to that, Rocky Mountain is 23.56 times more volatile than Exchange Bankshares. It trades about -0.23 of its total potential returns per unit of risk. Exchange Bankshares is currently generating about 0.58 per unit of volatility. If you would invest  4,775  in Exchange Bankshares on December 20, 2024 and sell it today you would earn a total of  15.00  from holding Exchange Bankshares or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	5.08%
Values	Daily Returns

Rocky Mountain Chocolate  vs.  Exchange Bankshares

Rocky Mountain Chocolate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rocky Mountain Chocolate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Exchange Bankshares

Risk-Adjusted Performance

Excellent

Over the last 90 days Exchange Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak fundamental indicators, Exchange Bankshares may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Rocky Mountain and Exchange Bankshares

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

The idea behind Rocky Mountain Chocolate and Exchange Bankshares 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.