Correlation Between Rocky Mountain and SATO Technologies

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

Diversification Opportunities for Rocky Mountain and SATO Technologies

0.24

Correlation Coefficient

Rocky Mountain  SATO Technologies

Modest diversification

The 3 months correlation between Rocky and SATO is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor and SATO Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SATO Technologies 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 SATO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SATO Technologies Corp has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and SATO Technologies go up and down completely randomly.

Pair Corralation between Rocky Mountain and SATO Technologies

Assuming the 90 days horizon Rocky Mountain Liquor is expected to under-perform the SATO Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Rocky Mountain Liquor is 2.42 times less risky than SATO Technologies. The stock trades about -0.05 of its potential returns per unit of risk. The SATO Technologies Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  25.00  in SATO Technologies Corp on September 12, 2024 and sell it today you would lose (3.00) from holding SATO Technologies Corp or give up 12.0% 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 Liquor  vs.  SATO Technologies Corp

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 latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

SATO Technologies Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SATO Technologies Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, SATO Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rocky Mountain and SATO Technologies

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

The idea behind Rocky Mountain Liquor and SATO Technologies 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.