Correlation Between Rockfire Resources and Bath Body

Can any of the company-specific risk be diversified away by investing in both Rockfire Resources and Bath Body 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 Rockfire Resources and Bath Body into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rockfire Resources plc and Bath Body Works, you can compare the effects of market volatilities on Rockfire Resources and Bath Body 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 Rockfire Resources with a short position of Bath Body. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rockfire Resources and Bath Body.

Diversification Opportunities for Rockfire Resources and Bath Body

0.77

Correlation Coefficient

Rockfire Resources  Bath Body

Poor diversification

The 3 months correlation between Rockfire and Bath is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Rockfire Resources plc and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works and Rockfire Resources 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 Rockfire Resources plc are associated (or correlated) with Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Rockfire Resources i.e., Rockfire Resources and Bath Body go up and down completely randomly.

Pair Corralation between Rockfire Resources and Bath Body

Assuming the 90 days trading horizon Rockfire Resources plc is expected to generate 4.04 times more return on investment than Bath Body. However, Rockfire Resources is 4.04 times more volatile than Bath Body Works. It trades about 0.09 of its potential returns per unit of risk. Bath Body Works is currently generating about 0.14 per unit of risk. If you would invest  11.00  in Rockfire Resources plc on September 23, 2024 and sell it today you would earn a total of  5.00  from holding Rockfire Resources plc or generate 45.45% return on investment over 90 days.

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

Rockfire Resources plc  vs.  Bath Body Works

Rockfire Resources plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockfire Resources plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rockfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bath Body Works

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Rockfire Resources and Bath Body

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

The idea behind Rockfire Resources plc and Bath Body Works 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.