Correlation Between Rocky Mountain and Falcon Energy

Can any of the company-specific risk be diversified away by investing in both Rocky Mountain and Falcon Energy 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 Falcon Energy 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 Falcon Energy Materials, you can compare the effects of market volatilities on Rocky Mountain and Falcon Energy 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 Falcon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocky Mountain and Falcon Energy.

Diversification Opportunities for Rocky Mountain and Falcon Energy

-0.42

Correlation Coefficient

Rocky Mountain  Falcon Energy

Very good diversification

The 3 months correlation between Rocky and Falcon is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials 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 Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and Falcon Energy go up and down completely randomly.

Pair Corralation between Rocky Mountain and Falcon Energy

Assuming the 90 days horizon Rocky Mountain is expected to generate 2.58 times less return on investment than Falcon Energy. But when comparing it to its historical volatility, Rocky Mountain Liquor is 1.41 times less risky than Falcon Energy. It trades about 0.06 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  68.00  in Falcon Energy Materials on September 2, 2024 and sell it today you would earn a total of  17.00  from holding Falcon Energy Materials or generate 25.0% return on investment over 90 days.

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

Rocky Mountain Liquor  vs.  Falcon Energy Materials

Rocky Mountain Liquor

Risk-Adjusted Performance

4 of 100

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 abnormal basic indicators, Rocky Mountain may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Falcon Energy Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Falcon Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rocky Mountain and Falcon Energy

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

The idea behind Rocky Mountain Liquor and Falcon Energy Materials 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.