Correlation Between First Community and RBC Bearings

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

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

Diversification Opportunities for First Community and RBC Bearings

0.79

Correlation Coefficient

First Community  RBC Bearings

Poor diversification

The 3 months correlation between First and RBC is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Community Bancshares and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and First Community 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 First Community Bancshares 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 First Community i.e., First Community and RBC Bearings go up and down completely randomly.

Pair Corralation between First Community and RBC Bearings

Given the investment horizon of 90 days First Community Bancshares is expected to under-perform the RBC Bearings. In addition to that, First Community is 1.53 times more volatile than RBC Bearings Incorporated. It trades about -0.23 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about -0.1 per unit of volatility. If you would invest  31,652  in RBC Bearings Incorporated on October 7, 2024 and sell it today you would lose (1,487) from holding RBC Bearings Incorporated or give up 4.7% of portfolio value over 90 days.

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

First Community Bancshares  vs.  RBC Bearings Incorporated

First Community Banc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Community Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, First Community is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 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 First Community and RBC Bearings

The main advantage of trading using opposite First Community and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Community 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 First Community Bancshares 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.

Check out your portfolio center.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.