Correlation Between RBC Bearings and Titan Machinery

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

Diversification Opportunities for RBC Bearings and Titan Machinery

0.66

Correlation Coefficient

RBC Bearings  Titan Machinery

Poor diversification

The 3 months correlation between RBC and Titan is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of RBC Bearings i.e., RBC Bearings and Titan Machinery go up and down completely randomly.

Pair Corralation between RBC Bearings and Titan Machinery

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 0.61 times more return on investment than Titan Machinery. However, RBC Bearings Incorporated is 1.64 times less risky than Titan Machinery. It trades about 0.34 of its potential returns per unit of risk. Titan Machinery is currently generating about 0.16 per unit of risk. If you would invest  28,530  in RBC Bearings Incorporated on September 2, 2024 and sell it today you would earn a total of  4,981  from holding RBC Bearings Incorporated or generate 17.46% 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.  Titan Machinery

RBC Bearings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, RBC Bearings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Titan Machinery

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Titan Machinery displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RBC Bearings and Titan Machinery

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

The idea behind RBC Bearings Incorporated and Titan Machinery 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.