Correlation Between Rocky Mountain and Nabors Industries

Can any of the company-specific risk be diversified away by investing in both Rocky Mountain and Nabors Industries 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 Nabors Industries 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 Nabors Industries, you can compare the effects of market volatilities on Rocky Mountain and Nabors Industries 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 Nabors Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocky Mountain and Nabors Industries.

Diversification Opportunities for Rocky Mountain and Nabors Industries

0.17

Correlation Coefficient

Rocky Mountain  Nabors Industries

Average diversification

The 3 months correlation between Rocky and Nabors is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Chocolate and Nabors Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Industries 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 Nabors Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Industries has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and Nabors Industries go up and down completely randomly.

Pair Corralation between Rocky Mountain and Nabors Industries

Given the investment horizon of 90 days Rocky Mountain Chocolate is expected to under-perform the Nabors Industries. But the stock apears to be less risky and, when comparing its historical volatility, Rocky Mountain Chocolate is 1.42 times less risky than Nabors Industries. The stock trades about -0.13 of its potential returns per unit of risk. The Nabors Industries is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  320.00  in Nabors Industries on October 26, 2024 and sell it today you would earn a total of  175.00  from holding Nabors Industries or generate 54.69% return on investment over 90 days.

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

Rocky Mountain Chocolate  vs.  Nabors Industries

Rocky Mountain Chocolate

Risk-Adjusted Performance

0 of 100

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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Nabors Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nabors Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nabors Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rocky Mountain and Nabors Industries

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

The idea behind Rocky Mountain Chocolate and Nabors Industries 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.