Correlation Between Rocky Brands and First Business

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

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

Diversification Opportunities for Rocky Brands and First Business

0.32

Correlation Coefficient

Rocky Brands  First Business

Weak diversification

The 3 months correlation between Rocky and First is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Brands and First Business Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Business Financial and Rocky Brands 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 Brands are associated (or correlated) with First Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Business Financial has no effect on the direction of Rocky Brands i.e., Rocky Brands and First Business go up and down completely randomly.

Pair Corralation between Rocky Brands and First Business

Given the investment horizon of 90 days Rocky Brands is expected to generate 3.73 times more return on investment than First Business. However, Rocky Brands is 3.73 times more volatile than First Business Financial. It trades about 0.21 of its potential returns per unit of risk. First Business Financial is currently generating about 0.09 per unit of risk. If you would invest  2,651  in Rocky Brands on February 12, 2024 and sell it today you would earn a total of  788.00  from holding Rocky Brands or generate 29.72% return on investment over 90 days.

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

Rocky Brands  vs.  First Business Financial

Rocky Brands

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Brands are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting forward-looking signals, Rocky Brands showed solid returns over the last few months and may actually be approaching a breakup point.

First Business Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Business Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, First Business is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rocky Brands and First Business

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

The idea behind Rocky Brands and First Business Financial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.