Correlation Between Rocky Mountain and Tootsie Roll

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

By analyzing existing cross correlation between Rocky Mountain Chocolate and Tootsie Roll Industries, you can compare the effects of market volatilities on Rocky Mountain and Tootsie Roll 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 Tootsie Roll. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocky Mountain and Tootsie Roll.

Diversification Opportunities for Rocky Mountain and Tootsie Roll

0.31

Correlation Coefficient

Rocky Mountain  Tootsie Roll

Weak diversification

The 3 months correlation between Rocky and Tootsie is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Chocolate and Tootsie Roll Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tootsie Roll Industries 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 Chocolate are associated (or correlated) with Tootsie Roll. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tootsie Roll Industries has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and Tootsie Roll go up and down completely randomly.

Pair Corralation between Rocky Mountain and Tootsie Roll

Given the investment horizon of 90 days Rocky Mountain Chocolate is expected to generate 2.79 times more return on investment than Tootsie Roll. However, Rocky Mountain is 2.79 times more volatile than Tootsie Roll Industries. It trades about -0.07 of its potential returns per unit of risk. Tootsie Roll Industries is currently generating about -0.34 per unit of risk. If you would invest  375.00  in Rocky Mountain Chocolate on February 1, 2024 and sell it today you would lose (17.00) from holding Rocky Mountain Chocolate or give up 4.53% of portfolio value over 90 days.

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

Rocky Mountain Chocolate  vs.  Tootsie Roll Industries

Rocky Mountain Chocolate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Mountain Chocolate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Tootsie Roll Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tootsie Roll Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Rocky Mountain and Tootsie Roll

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

The idea behind Rocky Mountain Chocolate and Tootsie Roll Industries 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 Global Correlations module to find global opportunities by holding instruments from different markets.