Correlation Between RBC Bearings and Arrow Electronics

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

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

Diversification Opportunities for RBC Bearings and Arrow Electronics

-0.62

Correlation Coefficient

RBC Bearings  Arrow Electronics

Excellent diversification

The 3 months correlation between RBC and Arrow is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics and RBC Bearings 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 RBC Bearings Incorporated are associated (or correlated) with Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of RBC Bearings i.e., RBC Bearings and Arrow Electronics go up and down completely randomly.

Pair Corralation between RBC Bearings and Arrow Electronics

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 0.81 times more return on investment than Arrow Electronics. However, RBC Bearings Incorporated is 1.23 times less risky than Arrow Electronics. It trades about 0.15 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.04 per unit of risk. If you would invest  28,883  in RBC Bearings Incorporated on September 2, 2024 and sell it today you would earn a total of  4,628  from holding RBC Bearings Incorporated or generate 16.02% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  Arrow Electronics

RBC Bearings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 11 (%) 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.

Arrow Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Arrow Electronics is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with RBC Bearings and Arrow Electronics

The main advantage of trading using opposite RBC Bearings and Arrow Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC Bearings position performs unexpectedly, Arrow Electronics 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 Arrow Electronics will offset losses from the drop in Arrow Electronics' long position.

The idea behind RBC Bearings Incorporated and Arrow Electronics 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.