Correlation Between River and Vulcan Materials

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

By analyzing existing cross correlation between River and Mercantile and Vulcan Materials Co, you can compare the effects of market volatilities on River and Vulcan Materials 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 River with a short position of Vulcan Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of River and Vulcan Materials.

Diversification Opportunities for River and Vulcan Materials

0.6

Correlation Coefficient

River  Vulcan Materials

Poor diversification

The 3 months correlation between River and Vulcan is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and Vulcan Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and River 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 River and Mercantile are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of River i.e., River and Vulcan Materials go up and down completely randomly.

Pair Corralation between River and Vulcan Materials

Assuming the 90 days trading horizon River is expected to generate 1.03 times less return on investment than Vulcan Materials. But when comparing it to its historical volatility, River and Mercantile is 1.13 times less risky than Vulcan Materials. It trades about 0.06 of its potential returns per unit of risk. Vulcan Materials Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  20,736  in Vulcan Materials Co on October 6, 2024 and sell it today you would earn a total of  4,974  from holding Vulcan Materials Co or generate 23.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.68%
Values	Daily Returns

River and Mercantile  vs.  Vulcan Materials Co

River and Mercantile

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vulcan Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vulcan Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with River and Vulcan Materials

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

The idea behind River and Mercantile and Vulcan Materials Co 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.