Correlation Between Makita and RBC Bearings

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

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

Diversification Opportunities for Makita and RBC Bearings

0.1

Correlation Coefficient

Makita  RBC Bearings

Average diversification

The 3 months correlation between Makita and RBC is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Makita and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Makita 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 Makita 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 Makita i.e., Makita and RBC Bearings go up and down completely randomly.

Pair Corralation between Makita and RBC Bearings

Assuming the 90 days trading horizon Makita is expected to generate 1.23 times more return on investment than RBC Bearings. However, Makita is 1.23 times more volatile than RBC Bearings Incorporated. It trades about 0.11 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.04 per unit of risk. If you would invest  2,842  in Makita on December 20, 2024 and sell it today you would earn a total of  444.00  from holding Makita or generate 15.62% return on investment over 90 days.

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

Makita  vs.  RBC Bearings Incorporated

Makita

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Makita are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Makita reported solid returns over the last few months and may actually be approaching a breakup point.

RBC Bearings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, RBC Bearings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Makita and RBC Bearings

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