Correlation Between Rocky Mountain and Intact Financial

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

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

Diversification Opportunities for Rocky Mountain and Intact Financial

0.22

Correlation Coefficient

Rocky Mountain  Intact Financial

Modest diversification

The 3 months correlation between Rocky and Intact is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor and Intact Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intact Financial Corp 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 Liquor are associated (or correlated) with Intact Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intact Financial Corp has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and Intact Financial go up and down completely randomly.

Pair Corralation between Rocky Mountain and Intact Financial

Assuming the 90 days horizon Rocky Mountain Liquor is expected to generate 11.07 times more return on investment than Intact Financial. However, Rocky Mountain is 11.07 times more volatile than Intact Financial Corp. It trades about 0.06 of its potential returns per unit of risk. Intact Financial Corp is currently generating about -0.03 per unit of risk. If you would invest  9.00  in Rocky Mountain Liquor on December 30, 2024 and sell it today you would earn a total of  1.00  from holding Rocky Mountain Liquor or generate 11.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Rocky Mountain Liquor  vs.  Intact Financial Corp

Rocky Mountain Liquor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain Liquor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Rocky Mountain showed solid returns over the last few months and may actually be approaching a breakup point.

Intact Financial Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Rocky Mountain and Intact Financial

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

The idea behind Rocky Mountain Liquor and Intact Financial Corp 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 Transaction History module to view history of all your transactions and understand their impact on performance.