Correlation Between Valhi and Rocky Brands

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

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

Diversification Opportunities for Valhi and Rocky Brands

0.53

Correlation Coefficient

Valhi  Rocky Brands

Very weak diversification

The 3 months correlation between Valhi and Rocky is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands and Valhi 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 Valhi Inc 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 Valhi i.e., Valhi and Rocky Brands go up and down completely randomly.

Pair Corralation between Valhi and Rocky Brands

Considering the 90-day investment horizon Valhi Inc is expected to generate 0.84 times more return on investment than Rocky Brands. However, Valhi Inc is 1.19 times less risky than Rocky Brands. It trades about 0.02 of its potential returns per unit of risk. Rocky Brands is currently generating about 0.01 per unit of risk. If you would invest  2,233  in Valhi Inc on September 29, 2024 and sell it today you would lose (6.00) from holding Valhi Inc or give up 0.27% of portfolio value over 90 days.

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

Valhi Inc  vs.  Rocky Brands

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 Valhi and Rocky Brands

The main advantage of trading using opposite Valhi and Rocky Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valhi 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 Valhi Inc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.