Correlation Between RBC Bearings and Southwest Airlines

Can any of the company-specific risk be diversified away by investing in both RBC Bearings and Southwest Airlines 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 Southwest Airlines 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 Southwest Airlines, you can compare the effects of market volatilities on RBC Bearings and Southwest Airlines 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 Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Bearings and Southwest Airlines.

Diversification Opportunities for RBC Bearings and Southwest Airlines

0.64

Correlation Coefficient

RBC Bearings  Southwest Airlines

Poor diversification

The 3 months correlation between RBC and Southwest is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines 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 Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of RBC Bearings i.e., RBC Bearings and Southwest Airlines go up and down completely randomly.

Pair Corralation between RBC Bearings and Southwest Airlines

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 0.69 times more return on investment than Southwest Airlines. However, RBC Bearings Incorporated is 1.45 times less risky than Southwest Airlines. It trades about 0.04 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.02 per unit of risk. If you would invest  26,850  in RBC Bearings Incorporated on October 7, 2024 and sell it today you would earn a total of  3,315  from holding RBC Bearings Incorporated or generate 12.35% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  Southwest Airlines

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.

Southwest Airlines

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with RBC Bearings and Southwest Airlines

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

The idea behind RBC Bearings Incorporated and Southwest Airlines 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.