Correlation Between Gulf Island and Rocky Mountain

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

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

Diversification Opportunities for Gulf Island and Rocky Mountain

-0.37

Correlation Coefficient

Gulf Island  Rocky Mountain

Very good diversification

The 3 months correlation between Gulf and Rocky is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Island Fabrication 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 Gulf Island 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 Gulf Island Fabrication 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 Gulf Island i.e., Gulf Island and Rocky Mountain go up and down completely randomly.

Pair Corralation between Gulf Island and Rocky Mountain

Given the investment horizon of 90 days Gulf Island is expected to generate 7.91 times less return on investment than Rocky Mountain. But when comparing it to its historical volatility, Gulf Island Fabrication is 9.25 times less risky than Rocky Mountain. It trades about 0.14 of its potential returns per unit of risk. Rocky Mountain High is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Rocky Mountain High on September 25, 2024 and sell it today you would lose (0.30) from holding Rocky Mountain High or give up 30.0% of portfolio value over 90 days.

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

Gulf Island Fabrication  vs.  Rocky Mountain High

Gulf Island Fabrication

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Island Fabrication are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Gulf Island demonstrated 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 unfluctuating technical indicators, Rocky Mountain sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gulf Island and Rocky Mountain

The main advantage of trading using opposite Gulf Island and Rocky Mountain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gulf Island 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 Gulf Island Fabrication 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.