Correlation Between Rocky Mountain and RBC Discount

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

Diversification Opportunities for Rocky Mountain and RBC Discount

-0.6

Correlation Coefficient

Rocky Mountain  RBC Discount

Excellent diversification

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

Pair Corralation between Rocky Mountain and RBC Discount

Assuming the 90 days horizon Rocky Mountain Liquor is expected to generate 16.25 times more return on investment than RBC Discount. However, Rocky Mountain is 16.25 times more volatile than RBC Discount Bond. It trades about 0.02 of its potential returns per unit of risk. RBC Discount Bond is currently generating about 0.11 per unit of risk. If you would invest  12.00  in Rocky Mountain Liquor on October 4, 2024 and sell it today you would lose (2.00) from holding Rocky Mountain Liquor or give up 16.67% of portfolio value over 90 days.

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

Rocky Mountain Liquor  vs.  RBC Discount Bond

Rocky Mountain Liquor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Mountain Liquor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

RBC Discount Bond

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Discount Bond are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Discount 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 RBC Discount

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

The idea behind Rocky Mountain Liquor and RBC Discount Bond 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.