Correlation Between Black Hills and RBC Bearings

Can any of the company-specific risk be diversified away by investing in both Black Hills and RBC Bearings 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 Black Hills and RBC Bearings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Black Hills and RBC Bearings Incorporated, you can compare the effects of market volatilities on Black Hills and RBC Bearings 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 Black Hills with a short position of RBC Bearings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Black Hills and RBC Bearings.

Diversification Opportunities for Black Hills and RBC Bearings

0.72

Correlation Coefficient

Black Hills  RBC Bearings

Poor diversification

The 3 months correlation between Black and RBC is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Black Hills 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 Black Hills are associated (or correlated) with RBC Bearings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Bearings has no effect on the direction of Black Hills i.e., Black Hills and RBC Bearings go up and down completely randomly.

Pair Corralation between Black Hills and RBC Bearings

Considering the 90-day investment horizon Black Hills is expected to under-perform the RBC Bearings. But the stock apears to be less risky and, when comparing its historical volatility, Black Hills is 1.1 times less risky than RBC Bearings. The stock trades about -0.26 of its potential returns per unit of risk. The RBC Bearings Incorporated is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  32,446  in RBC Bearings Incorporated on September 21, 2024 and sell it today you would lose (1,084) from holding RBC Bearings Incorporated or give up 3.34% of portfolio value over 90 days.

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

Black Hills  vs.  RBC Bearings Incorporated

Black Hills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Hills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

RBC Bearings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, RBC Bearings is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Black Hills and RBC Bearings

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

The idea behind Black Hills and RBC Bearings Incorporated 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.