Correlation Between RBC Bearings and Sensient Technologies

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

Diversification Opportunities for RBC Bearings and Sensient Technologies

0.21

Correlation Coefficient

RBC Bearings  Sensient Technologies

Modest diversification

The 3 months correlation between RBC and Sensient is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies 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 Sensient Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sensient Technologies has no effect on the direction of RBC Bearings i.e., RBC Bearings and Sensient Technologies go up and down completely randomly.

Pair Corralation between RBC Bearings and Sensient Technologies

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 1.1 times more return on investment than Sensient Technologies. However, RBC Bearings is 1.1 times more volatile than Sensient Technologies. It trades about 0.1 of its potential returns per unit of risk. Sensient Technologies is currently generating about 0.03 per unit of risk. If you would invest  30,019  in RBC Bearings Incorporated on December 27, 2024 and sell it today you would earn a total of  3,217  from holding RBC Bearings Incorporated or generate 10.72% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  Sensient Technologies

RBC Bearings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 7 (%) 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.

Sensient Technologies

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sensient Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sensient Technologies is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with RBC Bearings and Sensient Technologies

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

The idea behind RBC Bearings Incorporated and Sensient Technologies 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.