Correlation Between DNA Brands and Rocky Mountain

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

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

Diversification Opportunities for DNA Brands and Rocky Mountain

0.08

Correlation Coefficient

DNA Brands  Rocky Mountain

Significant diversification

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

Pair Corralation between DNA Brands and Rocky Mountain

Given the investment horizon of 90 days DNA Brands is expected to generate 1.28 times less return on investment than Rocky Mountain. But when comparing it to its historical volatility, DNA Brands is 1.58 times less risky than Rocky Mountain. It trades about 0.21 of its potential returns per unit of risk. Rocky Mountain High is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  0.73  in Rocky Mountain High on September 16, 2024 and sell it today you would earn a total of  0.12  from holding Rocky Mountain High or generate 16.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

DNA Brands  vs.  Rocky Mountain High

DNA Brands

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DNA Brands are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, DNA Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Rocky Mountain High

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Rocky Mountain sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DNA Brands and Rocky Mountain

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

The idea behind DNA Brands and Rocky Mountain High 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.