Correlation Between Rocky Mountain and DNA Brands

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

By analyzing existing cross correlation between Rocky Mountain High and DNA Brands, you can compare the effects of market volatilities on Rocky Mountain and DNA Brands 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 DNA Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocky Mountain and DNA Brands.

Diversification Opportunities for Rocky Mountain and DNA Brands

0.2

Correlation Coefficient

Rocky Mountain  DNA Brands

Modest diversification

The 3 months correlation between Rocky and DNA is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain High and DNA Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DNA Brands 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 High are associated (or correlated) with DNA Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DNA Brands has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and DNA Brands go up and down completely randomly.

Pair Corralation between Rocky Mountain and DNA Brands

Given the investment horizon of 90 days Rocky Mountain is expected to generate 15.25 times less return on investment than DNA Brands. But when comparing it to its historical volatility, Rocky Mountain High is 10.23 times less risky than DNA Brands. It trades about 0.1 of its potential returns per unit of risk. DNA Brands is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.02  in DNA Brands on December 27, 2024 and sell it today you would lose (0.01) from holding DNA Brands or give up 50.0% of portfolio value over 90 days.

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

Rocky Mountain High  vs.  DNA Brands

Rocky Mountain High

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Rocky Mountain sustained solid returns over the last few months and may actually be approaching a breakup point.

DNA Brands

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DNA Brands are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, DNA Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rocky Mountain and DNA Brands

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

The idea behind Rocky Mountain High and DNA Brands 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.