Correlation Between East Africa and RBC Bearings

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

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

Diversification Opportunities for East Africa and RBC Bearings

-0.28

Correlation Coefficient

East Africa  RBC Bearings

Very good diversification

The 3 months correlation between East and RBC is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and East Africa 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 East Africa Metals 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 East Africa i.e., East Africa and RBC Bearings go up and down completely randomly.

Pair Corralation between East Africa and RBC Bearings

Assuming the 90 days horizon East Africa Metals is expected to generate 39.55 times more return on investment than RBC Bearings. However, East Africa is 39.55 times more volatile than RBC Bearings Incorporated. It trades about 0.08 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.06 per unit of risk. If you would invest  18.00  in East Africa Metals on September 20, 2024 and sell it today you would lose (7.00) from holding East Africa Metals or give up 38.89% of portfolio value over 90 days.

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

East Africa Metals  vs.  RBC Bearings Incorporated

East Africa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

RBC Bearings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 4 (%) 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 January 2025.

Pair Trading with East Africa and RBC Bearings

The main advantage of trading using opposite East Africa and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Africa 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 East Africa Metals 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.