Correlation Between Insteel Industries and RBC Bearings

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

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

Diversification Opportunities for Insteel Industries and RBC Bearings

0.27

Correlation Coefficient

Insteel Industries  RBC Bearings

Modest diversification

The 3 months correlation between Insteel and RBC is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Insteel Industries 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 Insteel Industries 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 Insteel Industries i.e., Insteel Industries and RBC Bearings go up and down completely randomly.

Pair Corralation between Insteel Industries and RBC Bearings

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the RBC Bearings. In addition to that, Insteel Industries is 1.29 times more volatile than RBC Bearings Incorporated. It trades about -0.04 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.13 per unit of volatility. If you would invest  28,682  in RBC Bearings Incorporated on September 15, 2024 and sell it today you would earn a total of  4,076  from holding RBC Bearings Incorporated or generate 14.21% return on investment over 90 days.

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

Insteel Industries  vs.  RBC Bearings Incorporated

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Insteel Industries is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

RBC Bearings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, RBC Bearings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insteel Industries and RBC Bearings

The main advantage of trading using opposite Insteel Industries and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insteel Industries 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 Insteel Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.