Correlation Between Eastern and RBC Bearings

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

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

Diversification Opportunities for Eastern and RBC Bearings

0.34

Correlation Coefficient

Eastern  RBC Bearings

Weak diversification

The 3 months correlation between Eastern and RBC is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Eastern 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 Eastern Co 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 Eastern i.e., Eastern and RBC Bearings go up and down completely randomly.

Pair Corralation between Eastern and RBC Bearings

Considering the 90-day investment horizon Eastern is expected to generate 3.69 times less return on investment than RBC Bearings. In addition to that, Eastern is 1.23 times more volatile than RBC Bearings Incorporated. It trades about 0.02 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.11 per unit of volatility. If you would invest  29,709  in RBC Bearings Incorporated on December 28, 2024 and sell it today you would earn a total of  3,567  from holding RBC Bearings Incorporated or generate 12.01% return on investment over 90 days.

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

Eastern Co  vs.  RBC Bearings Incorporated

Eastern

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

RBC Bearings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, RBC Bearings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastern and RBC Bearings

The main advantage of trading using opposite Eastern and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern 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 Eastern Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.