Correlation Between Adidas AG and Rocky Brands

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

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

Diversification Opportunities for Adidas AG and Rocky Brands

0.59

Correlation Coefficient

Adidas AG  Rocky Brands

Very weak diversification

The 3 months correlation between Adidas and Rocky is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Adidas AG and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands and Adidas AG 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 Adidas AG 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 Adidas AG i.e., Adidas AG and Rocky Brands go up and down completely randomly.

Pair Corralation between Adidas AG and Rocky Brands

Assuming the 90 days horizon Adidas AG is expected to generate 0.68 times more return on investment than Rocky Brands. However, Adidas AG is 1.46 times less risky than Rocky Brands. It trades about 0.03 of its potential returns per unit of risk. Rocky Brands is currently generating about -0.09 per unit of risk. If you would invest  24,942  in Adidas AG on September 19, 2024 and sell it today you would earn a total of  679.00  from holding Adidas AG or generate 2.72% return on investment over 90 days.

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

Adidas AG  vs.  Rocky Brands

Adidas AG

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Adidas AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Adidas AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 inconsistent 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 Adidas AG and Rocky Brands

The main advantage of trading using opposite Adidas AG and Rocky Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adidas AG 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 Adidas AG 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.