Correlation Between Estee Lauder and RBC Bearings

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

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

Diversification Opportunities for Estee Lauder and RBC Bearings

-0.53

Correlation Coefficient

Estee Lauder  RBC Bearings

Excellent diversification

The 3 months correlation between Estee and RBC is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Estee Lauder 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 Estee Lauder Companies 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 Estee Lauder i.e., Estee Lauder and RBC Bearings go up and down completely randomly.

Pair Corralation between Estee Lauder and RBC Bearings

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to generate 1.77 times more return on investment than RBC Bearings. However, Estee Lauder is 1.77 times more volatile than RBC Bearings Incorporated. It trades about 0.52 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.1 per unit of risk. If you would invest  6,426  in Estee Lauder Companies on September 17, 2024 and sell it today you would earn a total of  1,578  from holding Estee Lauder Companies or generate 24.56% return on investment over 90 days.

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

Estee Lauder Companies  vs.  RBC Bearings Incorporated

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Estee Lauder is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

RBC Bearings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 9 (%) 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 Estee Lauder and RBC Bearings

The main advantage of trading using opposite Estee Lauder and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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 Estee Lauder Companies 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.