Correlation Between RBC Bearings and Estee Lauder

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

Diversification Opportunities for RBC Bearings and Estee Lauder

-0.53

Correlation Coefficient

RBC Bearings  Estee Lauder

Excellent diversification

The 3 months correlation between RBC and Estee is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated and Estee Lauder Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Estee Lauder Companies 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 Estee Lauder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Estee Lauder Companies has no effect on the direction of RBC Bearings i.e., RBC Bearings and Estee Lauder go up and down completely randomly.

Pair Corralation between RBC Bearings and Estee Lauder

Considering the 90-day investment horizon RBC Bearings Incorporated is expected to generate 0.47 times more return on investment than Estee Lauder. However, RBC Bearings Incorporated is 2.12 times less risky than Estee Lauder. It trades about 0.12 of its potential returns per unit of risk. Estee Lauder Companies is currently generating about -0.02 per unit of risk. If you would invest  29,050  in RBC Bearings Incorporated on September 17, 2024 and sell it today you would earn a total of  3,708  from holding RBC Bearings Incorporated or generate 12.76% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  Estee Lauder Companies

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.

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.

Pair Trading with RBC Bearings and Estee Lauder

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

The idea behind RBC Bearings Incorporated and Estee Lauder Companies 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.