Correlation Between Stanley Black and RBC Bearings

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

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

Diversification Opportunities for Stanley Black and RBC Bearings

-0.28

Correlation Coefficient

Stanley Black  RBC Bearings

Very good diversification

The 3 months correlation between Stanley and RBC is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Stanley Black Decker and RBC Bearings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Stanley Black 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 Stanley Black Decker 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 Stanley Black i.e., Stanley Black and RBC Bearings go up and down completely randomly.

Pair Corralation between Stanley Black and RBC Bearings

Considering the 90-day investment horizon Stanley Black Decker is expected to generate 1.4 times more return on investment than RBC Bearings. However, Stanley Black is 1.4 times more volatile than RBC Bearings. It trades about -0.08 of its potential returns per unit of risk. RBC Bearings is currently generating about -0.12 per unit of risk. If you would invest  9,994  in Stanley Black Decker on August 31, 2024 and sell it today you would lose (1,017) from holding Stanley Black Decker or give up 10.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.79%
Values	Daily Returns

Stanley Black Decker  vs.  RBC Bearings

Stanley Black Decker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stanley Black Decker has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

RBC Bearings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RBC Bearings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Stanley Black and RBC Bearings

The main advantage of trading using opposite Stanley Black and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stanley Black 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 Stanley Black Decker and RBC Bearings 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.