Correlation Between STATE and RBC Bearings

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

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

Diversification Opportunities for STATE and RBC Bearings

0.13

Correlation Coefficient

STATE  RBC Bearings

Average diversification

The 3 months correlation between STATE and RBC is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding STATE STR P and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and STATE 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 STATE STR P 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 STATE i.e., STATE and RBC Bearings go up and down completely randomly.

Pair Corralation between STATE and RBC Bearings

Assuming the 90 days trading horizon STATE STR P is expected to under-perform the RBC Bearings. But the bond apears to be less risky and, when comparing its historical volatility, STATE STR P is 2.69 times less risky than RBC Bearings. The bond trades about -0.11 of its potential returns per unit of risk. The RBC Bearings Incorporated is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  33,511  in RBC Bearings Incorporated on November 28, 2024 and sell it today you would earn a total of  2,305  from holding RBC Bearings Incorporated or generate 6.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.22%
Values	Daily Returns

STATE STR P  vs.  RBC Bearings Incorporated

STATE STR P

Risk-Adjusted Performance

Very Weak

Over the last 90 days STATE STR P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, STATE 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

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 5 (%) 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 March 2025.

Pair Trading with STATE and RBC Bearings

The main advantage of trading using opposite STATE and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STATE 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 STATE STR P 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..