Correlation Between RBC Bearings and Summit Materials

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

Diversification Opportunities for RBC Bearings and Summit Materials

0.81

Correlation Coefficient

RBC Bearings  Summit Materials

Very poor diversification

The 3 months correlation between RBC and Summit is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of RBC Bearings i.e., RBC Bearings and Summit Materials go up and down completely randomly.

Pair Corralation between RBC Bearings and Summit Materials

Considering the 90-day investment horizon RBC Bearings is expected to generate 1.41 times less return on investment than Summit Materials. But when comparing it to its historical volatility, RBC Bearings Incorporated is 1.2 times less risky than Summit Materials. It trades about 0.06 of its potential returns per unit of risk. Summit Materials is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,839  in Summit Materials on September 20, 2024 and sell it today you would earn a total of  2,212  from holding Summit Materials or generate 77.93% 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.  Summit Materials

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

Summit Materials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RBC Bearings and Summit Materials

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

The idea behind RBC Bearings Incorporated and Summit Materials 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.