Correlation Between Boston Beer and Rocky Brands

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

By analyzing existing cross correlation between Boston Beer and Rocky Brands, you can compare the effects of market volatilities on Boston Beer and Rocky Brands 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 Boston Beer with a short position of Rocky Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boston Beer and Rocky Brands.

Diversification Opportunities for Boston Beer and Rocky Brands

-0.82

Correlation Coefficient

Boston Beer  Rocky Brands

Pay attention - limited upside

The 3 months correlation between Boston and Rocky is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands and Boston Beer 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 Boston Beer are associated (or correlated) with Rocky Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Brands has no effect on the direction of Boston Beer i.e., Boston Beer and Rocky Brands go up and down completely randomly.

Pair Corralation between Boston Beer and Rocky Brands

Considering the 90-day investment horizon Boston Beer is expected to generate 5.7 times less return on investment than Rocky Brands. But when comparing it to its historical volatility, Boston Beer is 1.83 times less risky than Rocky Brands. It trades about 0.01 of its potential returns per unit of risk. Rocky Brands is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,368  in Rocky Brands on September 24, 2024 and sell it today you would lose (97.00) from holding Rocky Brands or give up 4.1% of portfolio value over 90 days.

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

Boston Beer  vs.  Rocky Brands

Boston Beer

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Boston Beer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rocky Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Boston Beer and Rocky Brands

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

The idea behind Boston Beer and Rocky Brands 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.