Correlation Between Freeport and RBC Bearings

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

By analyzing existing cross correlation between Freeport McMoRan 54 percent and RBC Bearings Incorporated, you can compare the effects of market volatilities on Freeport 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 Freeport with a short position of RBC Bearings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport and RBC Bearings.

Diversification Opportunities for Freeport and RBC Bearings

-0.28

Correlation Coefficient

Freeport  RBC Bearings

Very good diversification

The 3 months correlation between Freeport and RBC is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan 54 percent and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Freeport 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 Freeport McMoRan 54 percent 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 Freeport i.e., Freeport and RBC Bearings go up and down completely randomly.

Pair Corralation between Freeport and RBC Bearings

Assuming the 90 days trading horizon Freeport is expected to generate 9.47 times less return on investment than RBC Bearings. But when comparing it to its historical volatility, Freeport McMoRan 54 percent is 2.29 times less risky than RBC Bearings. It trades about 0.01 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  20,935  in RBC Bearings Incorporated on September 20, 2024 and sell it today you would earn a total of  10,638  from holding RBC Bearings Incorporated or generate 50.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Freeport McMoRan 54 percent  vs.  RBC Bearings Incorporated

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan 54 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freeport is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

RBC Bearings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, RBC Bearings is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Freeport and RBC Bearings

The main advantage of trading using opposite Freeport and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freeport 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 Freeport McMoRan 54 percent 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.