Correlation Between Summit Materials and Rocky Brands

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

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

Diversification Opportunities for Summit Materials and Rocky Brands

-0.9

Correlation Coefficient

Summit Materials  Rocky Brands

Pay attention - limited upside

The 3 months correlation between Summit and Rocky is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands and Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and Rocky Brands go up and down completely randomly.

Pair Corralation between Summit Materials and Rocky Brands

Considering the 90-day investment horizon Summit Materials is expected to under-perform the Rocky Brands. But the stock apears to be less risky and, when comparing its historical volatility, Summit Materials is 9.34 times less risky than Rocky Brands. The stock trades about -0.13 of its potential returns per unit of risk. The Rocky Brands is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,217  in Rocky Brands on October 3, 2024 and sell it today you would earn a total of  63.00  from holding Rocky Brands or generate 2.84% return on investment over 90 days.

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

Summit Materials  vs.  Rocky Brands

Summit Materials

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

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 conflicting performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Summit Materials and Rocky Brands

The main advantage of trading using opposite Summit Materials and Rocky Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials 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.

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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.