Correlation Between RBC Bearings and Cumberland Pharmaceuticals

Can any of the company-specific risk be diversified away by investing in both RBC Bearings and Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals, you can compare the effects of market volatilities on RBC Bearings and Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Bearings and Cumberland Pharmaceuticals.

Diversification Opportunities for RBC Bearings and Cumberland Pharmaceuticals

-0.38

Correlation Coefficient

RBC Bearings  Cumberland Pharmaceuticals

Very good diversification

The 3 months correlation between RBC and Cumberland is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cumberland Pharmaceuticals has no effect on the direction of RBC Bearings i.e., RBC Bearings and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between RBC Bearings and Cumberland Pharmaceuticals

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 0.43 times more return on investment than Cumberland Pharmaceuticals. However, RBC Bearings Incorporated is 2.32 times less risky than Cumberland Pharmaceuticals. It trades about 0.18 of its potential returns per unit of risk. Cumberland Pharmaceuticals is currently generating about 0.0 per unit of risk. If you would invest  28,437  in RBC Bearings Incorporated on September 5, 2024 and sell it today you would earn a total of  5,666  from holding RBC Bearings Incorporated or generate 19.92% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  Cumberland Pharmaceuticals

RBC Bearings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 13 (%) 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.

Cumberland Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cumberland Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Cumberland Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RBC Bearings and Cumberland Pharmaceuticals

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

The idea behind RBC Bearings Incorporated and Cumberland Pharmaceuticals 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.