Correlation Between Rocky Mountain and Premium Catering

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

Diversification Opportunities for Rocky Mountain and Premium Catering

-0.74

Correlation Coefficient

Rocky Mountain  Premium Catering

Pay attention - limited upside

The 3 months correlation between Rocky and Premium is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Chocolate and Premium Catering Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Catering 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 Premium Catering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Catering has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and Premium Catering go up and down completely randomly.

Pair Corralation between Rocky Mountain and Premium Catering

Given the investment horizon of 90 days Rocky Mountain Chocolate is expected to generate 0.32 times more return on investment than Premium Catering. However, Rocky Mountain Chocolate is 3.17 times less risky than Premium Catering. It trades about -0.03 of its potential returns per unit of risk. Premium Catering Limited is currently generating about -0.09 per unit of risk. If you would invest  448.00  in Rocky Mountain Chocolate on October 9, 2024 and sell it today you would lose (175.00) from holding Rocky Mountain Chocolate or give up 39.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	29.15%
Values	Daily Returns

Rocky Mountain Chocolate  vs.  Premium Catering Limited

Rocky Mountain Chocolate

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain Chocolate are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Rocky Mountain reported solid returns over the last few months and may actually be approaching a breakup point.

Premium Catering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Catering Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Rocky Mountain and Premium Catering

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

The idea behind Rocky Mountain Chocolate and Premium Catering Limited 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.