Correlation Between Spectrum Brands and RBC Bearings

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

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

Diversification Opportunities for Spectrum Brands and RBC Bearings

0.47

Correlation Coefficient

Spectrum Brands  RBC Bearings

Very weak diversification

The 3 months correlation between Spectrum and RBC is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Brands Holdings and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Spectrum Brands 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 Spectrum Brands Holdings 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 Spectrum Brands i.e., Spectrum Brands and RBC Bearings go up and down completely randomly.

Pair Corralation between Spectrum Brands and RBC Bearings

Considering the 90-day investment horizon Spectrum Brands Holdings is expected to under-perform the RBC Bearings. But the stock apears to be less risky and, when comparing its historical volatility, Spectrum Brands Holdings is 1.62 times less risky than RBC Bearings. The stock trades about -0.05 of its potential returns per unit of risk. The RBC Bearings Incorporated is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  30,393  in RBC Bearings Incorporated on October 27, 2024 and sell it today you would earn a total of  1,030  from holding RBC Bearings Incorporated or generate 3.39% return on investment over 90 days.

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

Spectrum Brands Holdings  vs.  RBC Bearings Incorporated

Spectrum Brands Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spectrum Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Spectrum Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

RBC Bearings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 6 (%) 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 February 2025.

Pair Trading with Spectrum Brands and RBC Bearings

The main advantage of trading using opposite Spectrum Brands and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spectrum Brands 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 Spectrum Brands Holdings 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.