Correlation Between RBC Bearings and Palomar Holdings

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

Diversification Opportunities for RBC Bearings and Palomar Holdings

0.71

Correlation Coefficient

RBC Bearings  Palomar Holdings

Poor diversification

The 3 months correlation between RBC and Palomar is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar Holdings 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 Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of RBC Bearings i.e., RBC Bearings and Palomar Holdings go up and down completely randomly.

Pair Corralation between RBC Bearings and Palomar Holdings

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to under-perform the Palomar Holdings. But the stock apears to be less risky and, when comparing its historical volatility, RBC Bearings Incorporated is 4.21 times less risky than Palomar Holdings. The stock trades about -0.12 of its potential returns per unit of risk. The Palomar Holdings is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  10,703  in Palomar Holdings on December 4, 2024 and sell it today you would earn a total of  2,117  from holding Palomar Holdings or generate 19.78% 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.  Palomar Holdings

RBC Bearings

Risk-Adjusted Performance

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

Palomar Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Palomar Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RBC Bearings and Palomar Holdings

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

The idea behind RBC Bearings Incorporated and Palomar Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.