Correlation Between RBC Bearings and Ecolab

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

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

Diversification Opportunities for RBC Bearings and Ecolab

-0.58

Correlation Coefficient

RBC Bearings  Ecolab

Excellent diversification

The 3 months correlation between RBC and Ecolab is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and RBC Bearings 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 RBC Bearings Incorporated are associated (or correlated) with Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of RBC Bearings i.e., RBC Bearings and Ecolab go up and down completely randomly.

Pair Corralation between RBC Bearings and Ecolab

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 1.97 times more return on investment than Ecolab. However, RBC Bearings is 1.97 times more volatile than Ecolab Inc. It trades about 0.1 of its potential returns per unit of risk. Ecolab Inc is currently generating about -0.21 per unit of risk. If you would invest  28,443  in RBC Bearings Incorporated on September 22, 2024 and sell it today you would earn a total of  2,185  from holding RBC Bearings Incorporated or generate 7.68% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  Ecolab Inc

RBC Bearings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 2 (%) 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.

Ecolab Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecolab Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with RBC Bearings and Ecolab

The main advantage of trading using opposite RBC Bearings and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC Bearings position performs unexpectedly, Ecolab 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 Ecolab will offset losses from the drop in Ecolab's long position.

The idea behind RBC Bearings Incorporated and Ecolab Inc 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.