Correlation Between Boston Beer and RBC Bearings

Can any of the company-specific risk be diversified away by investing in both Boston Beer and RBC Bearings 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 Boston Beer and RBC Bearings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Boston Beer and RBC Bearings Incorporated, you can compare the effects of market volatilities on Boston Beer and RBC Bearings 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 Boston Beer with a short position of RBC Bearings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boston Beer and RBC Bearings.

Diversification Opportunities for Boston Beer and RBC Bearings

0.77

Correlation Coefficient

Boston Beer  RBC Bearings

Poor diversification

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

Pair Corralation between Boston Beer and RBC Bearings

Considering the 90-day investment horizon Boston Beer is expected to generate 7.85 times less return on investment than RBC Bearings. In addition to that, Boston Beer is 1.36 times more volatile than RBC Bearings Incorporated. It trades about 0.01 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.06 per unit of volatility. If you would invest  20,606  in RBC Bearings Incorporated on September 18, 2024 and sell it today you would earn a total of  12,031  from holding RBC Bearings Incorporated or generate 58.39% return on investment over 90 days.

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

Boston Beer  vs.  RBC Bearings Incorporated

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.

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.

Pair Trading with Boston Beer and RBC Bearings

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

The idea behind Boston Beer and RBC Bearings Incorporated 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .