Correlation Between Rocky Mountain and CHAR Technologies

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Can any of the company-specific risk be diversified away by investing in both Rocky Mountain and CHAR Technologies 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 Mountain and CHAR Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rocky Mountain Liquor and CHAR Technologies, you can compare the effects of market volatilities on Rocky Mountain and CHAR Technologies 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 Mountain with a short position of CHAR Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocky Mountain and CHAR Technologies.

Diversification Opportunities for Rocky Mountain and CHAR Technologies

-0.08
  Correlation Coefficient

Good diversification

The 3 months correlation between Rocky and CHAR is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor and CHAR Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHAR Technologies and Rocky Mountain 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 Mountain Liquor are associated (or correlated) with CHAR Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHAR Technologies has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and CHAR Technologies go up and down completely randomly.

Pair Corralation between Rocky Mountain and CHAR Technologies

Assuming the 90 days horizon Rocky Mountain Liquor is expected to generate 1.41 times more return on investment than CHAR Technologies. However, Rocky Mountain is 1.41 times more volatile than CHAR Technologies. It trades about 0.18 of its potential returns per unit of risk. CHAR Technologies is currently generating about 0.16 per unit of risk. If you would invest  9.00  in Rocky Mountain Liquor on November 24, 2023 and sell it today you would earn a total of  2.00  from holding Rocky Mountain Liquor or generate 22.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Rocky Mountain Liquor  vs.  CHAR Technologies

 Performance 
       Timeline  
Rocky Mountain Liquor 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain Liquor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Rocky Mountain showed solid returns over the last few months and may actually be approaching a breakup point.
CHAR Technologies 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days CHAR Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CHAR Technologies is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Rocky Mountain and CHAR Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rocky Mountain and CHAR Technologies

The main advantage of trading using opposite Rocky Mountain and CHAR Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rocky Mountain position performs unexpectedly, CHAR Technologies 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 CHAR Technologies will offset losses from the drop in CHAR Technologies' long position.
The idea behind Rocky Mountain Liquor and CHAR Technologies 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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