Correlation Between Rocky Mountain and Altria

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

Diversification Opportunities for Rocky Mountain and Altria

-0.08

Correlation Coefficient

Rocky Mountain  Altria

Good diversification

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

Pair Corralation between Rocky Mountain and Altria

Given the investment horizon of 90 days Rocky Mountain High is expected to generate 26.97 times more return on investment than Altria. However, Rocky Mountain is 26.97 times more volatile than Altria Group. It trades about 0.13 of its potential returns per unit of risk. Altria Group is currently generating about -0.27 per unit of risk. If you would invest  0.47  in Rocky Mountain High on October 17, 2024 and sell it today you would earn a total of  0.03  from holding Rocky Mountain High or generate 6.38% return on investment over 90 days.

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

Rocky Mountain High  vs.  Altria Group

Rocky Mountain High

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 10 (%) 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.

Altria Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Altria is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Rocky Mountain and Altria

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

The idea behind Rocky Mountain High and Altria Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.