Correlation Between Newpark Resources and RBC Bearings

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

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

Diversification Opportunities for Newpark Resources and RBC Bearings

0.83

Correlation Coefficient

Newpark Resources  RBC Bearings

Very poor diversification

The 3 months correlation between Newpark and RBC is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Newpark Resources 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 Newpark Resources 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 Newpark Resources i.e., Newpark Resources and RBC Bearings go up and down completely randomly.

Pair Corralation between Newpark Resources and RBC Bearings

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 1.82 times more return on investment than RBC Bearings. However, Newpark Resources is 1.82 times more volatile than RBC Bearings Incorporated. It trades about 0.17 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.19 per unit of risk. If you would invest  725.00  in Newpark Resources on September 12, 2024 and sell it today you would earn a total of  57.00  from holding Newpark Resources or generate 7.86% return on investment over 90 days.

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

Newpark Resources  vs.  RBC Bearings Incorporated

Newpark Resources

Risk-Adjusted Performance

8 of 100

Modest

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

RBC Bearings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, RBC Bearings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newpark Resources and RBC Bearings

The main advantage of trading using opposite Newpark Resources and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newpark Resources 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 Newpark Resources 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.