Correlation Between RBC Bearings and PACCAR

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

Diversification Opportunities for RBC Bearings and PACCAR

0.76

Correlation Coefficient

RBC Bearings  PACCAR

Poor diversification

The 3 months correlation between RBC and PACCAR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of RBC Bearings i.e., RBC Bearings and PACCAR go up and down completely randomly.

Pair Corralation between RBC Bearings and PACCAR

Considering the 90-day investment horizon RBC Bearings is expected to generate 1.33 times less return on investment than PACCAR. In addition to that, RBC Bearings is 1.1 times more volatile than PACCAR Inc. It trades about 0.06 of its total potential returns per unit of risk. PACCAR Inc is currently generating about 0.08 per unit of volatility. If you would invest  6,230  in PACCAR Inc on September 20, 2024 and sell it today you would earn a total of  4,936  from holding PACCAR Inc or generate 79.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

RBC Bearings Incorporated  vs.  PACCAR Inc

RBC Bearings

Risk-Adjusted Performance

4 of 100

Modest

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 unfluctuating fundamental drivers, RBC Bearings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PACCAR Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RBC Bearings and PACCAR

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

The idea behind RBC Bearings Incorporated and PACCAR 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.

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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.