Correlation Between RBC Bearings and Boston Beer

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

Diversification Opportunities for RBC Bearings and Boston Beer

0.77

Correlation Coefficient

RBC Bearings  Boston Beer

Poor diversification

The 3 months correlation between RBC and Boston is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Boston Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Beer 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 Boston Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Beer has no effect on the direction of RBC Bearings i.e., RBC Bearings and Boston Beer go up and down completely randomly.

Pair Corralation between RBC Bearings and Boston Beer

Considering the 90-day investment horizon RBC Bearings is expected to generate 1.01 times less return on investment than Boston Beer. In addition to that, RBC Bearings is 1.1 times more volatile than Boston Beer. It trades about 0.11 of its total potential returns per unit of risk. Boston Beer is currently generating about 0.12 per unit of volatility. If you would invest  27,462  in Boston Beer on September 18, 2024 and sell it today you would earn a total of  3,288  from holding Boston Beer or generate 11.97% 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.  Boston Beer

RBC Bearings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 8 (%) 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.

Boston Beer

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Boston Beer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RBC Bearings and Boston Beer

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

The idea behind RBC Bearings Incorporated and Boston Beer 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.