Correlation Between Diageo PLC and RBC Bearings

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

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

Diversification Opportunities for Diageo PLC and RBC Bearings

-0.73

Correlation Coefficient

Diageo PLC  RBC Bearings

Pay attention - limited upside

The 3 months correlation between Diageo and RBC is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Diageo PLC 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 Diageo PLC ADR 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 Diageo PLC i.e., Diageo PLC and RBC Bearings go up and down completely randomly.

Pair Corralation between Diageo PLC and RBC Bearings

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the RBC Bearings. In addition to that, Diageo PLC is 1.05 times more volatile than RBC Bearings Incorporated. It trades about -0.07 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.07 per unit of volatility. If you would invest  33,511  in RBC Bearings Incorporated on November 28, 2024 and sell it today you would earn a total of  2,239  from holding RBC Bearings Incorporated or generate 6.68% return on investment over 90 days.

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

Diageo PLC ADR  vs.  RBC Bearings Incorporated

Diageo PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

RBC Bearings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, RBC Bearings may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Diageo PLC and RBC Bearings

The main advantage of trading using opposite Diageo PLC and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC 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 Diageo PLC ADR 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.