Correlation Between Continental and Rocky Brands

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

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

Diversification Opportunities for Continental and Rocky Brands

-0.01

Correlation Coefficient

Continental  Rocky Brands

Good diversification

The 3 months correlation between Continental and Rocky is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Caleres and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands and Continental 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 Caleres 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 Continental i.e., Continental and Rocky Brands go up and down completely randomly.

Pair Corralation between Continental and Rocky Brands

Considering the 90-day investment horizon Continental is expected to generate 4.23 times less return on investment than Rocky Brands. But when comparing it to its historical volatility, Caleres is 3.31 times less risky than Rocky Brands. It trades about 0.2 of its potential returns per unit of risk. Rocky Brands is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,616  in Rocky Brands on February 16, 2024 and sell it today you would earn a total of  1,076  from holding Rocky Brands or generate 41.13% return on investment over 90 days.

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

Caleres  vs.  Rocky Brands

Continental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caleres are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Continental is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Rocky Brands

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Brands are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward-looking signals, Rocky Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Continental and Rocky Brands

The main advantage of trading using opposite Continental and Rocky Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Continental 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 Caleres 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.