Correlation Between RBC Bearings and Newpark Resources

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

Diversification Opportunities for RBC Bearings and Newpark Resources

0.84

Correlation Coefficient

RBC Bearings  Newpark Resources

Very poor diversification

The 3 months correlation between RBC and Newpark is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark Resources 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 Newpark Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newpark Resources has no effect on the direction of RBC Bearings i.e., RBC Bearings and Newpark Resources go up and down completely randomly.

Pair Corralation between RBC Bearings and Newpark Resources

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 0.71 times more return on investment than Newpark Resources. However, RBC Bearings Incorporated is 1.41 times less risky than Newpark Resources. It trades about 0.21 of its potential returns per unit of risk. Newpark Resources is currently generating about 0.1 per unit of risk. If you would invest  28,065  in RBC Bearings Incorporated on September 13, 2024 and sell it today you would earn a total of  5,002  from holding RBC Bearings Incorporated or generate 17.82% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  Newpark Resources

RBC Bearings

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, RBC Bearings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Newpark Resources

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Newpark Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RBC Bearings and Newpark Resources

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

The idea behind RBC Bearings Incorporated and Newpark Resources 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 Global Correlations module to find global opportunities by holding instruments from different markets.