Correlation Between MI Homes and RBC Bearings

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

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

Diversification Opportunities for MI Homes and RBC Bearings

0.05

Correlation Coefficient

MI Homes  RBC Bearings

Significant diversification

The 3 months correlation between MHO and RBC is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and MI Homes 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 MI Homes 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 MI Homes i.e., MI Homes and RBC Bearings go up and down completely randomly.

Pair Corralation between MI Homes and RBC Bearings

Considering the 90-day investment horizon MI Homes is expected to under-perform the RBC Bearings. In addition to that, MI Homes is 2.01 times more volatile than RBC Bearings Incorporated. It trades about -0.54 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about -0.56 per unit of volatility. If you would invest  33,356  in RBC Bearings Incorporated on October 8, 2024 and sell it today you would lose (3,191) from holding RBC Bearings Incorporated or give up 9.57% of portfolio value over 90 days.

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

MI Homes  vs.  RBC Bearings Incorporated

MI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

RBC Bearings

Risk-Adjusted Performance

5 of 100

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 February 2025.

Pair Trading with MI Homes and RBC Bearings

The main advantage of trading using opposite MI Homes and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MI Homes 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 MI Homes 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.