Correlation Between Rocky Mountain and BBB Foods

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

Diversification Opportunities for Rocky Mountain and BBB Foods

-0.1

Correlation Coefficient

Rocky Mountain  BBB Foods

Good diversification

The 3 months correlation between Rocky and BBB is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Chocolate and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and BBB Foods go up and down completely randomly.

Pair Corralation between Rocky Mountain and BBB Foods

Given the investment horizon of 90 days Rocky Mountain Chocolate is expected to under-perform the BBB Foods. In addition to that, Rocky Mountain is 1.56 times more volatile than BBB Foods. It trades about -0.09 of its total potential returns per unit of risk. BBB Foods is currently generating about 0.06 per unit of volatility. If you would invest  2,944  in BBB Foods on October 10, 2024 and sell it today you would earn a total of  66.00  from holding BBB Foods or generate 2.24% return on investment over 90 days.

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

Rocky Mountain Chocolate  vs.  BBB Foods

Rocky Mountain Chocolate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain Chocolate are ranked lower than 6 (%) 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.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rocky Mountain and BBB Foods

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

The idea behind Rocky Mountain Chocolate and BBB Foods 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.