Correlation Between Red Branch and RBC Bearings

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

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

Diversification Opportunities for Red Branch and RBC Bearings

0.0

Correlation Coefficient

Red Branch  RBC Bearings

Pay attention - limited upside

The 3 months correlation between Red and RBC is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Red Branch Technologies and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Red Branch 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 Red Branch Technologies 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 Red Branch i.e., Red Branch and RBC Bearings go up and down completely randomly.

Pair Corralation between Red Branch and RBC Bearings

Given the investment horizon of 90 days Red Branch Technologies is expected to under-perform the RBC Bearings. In addition to that, Red Branch is 2.9 times more volatile than RBC Bearings Incorporated. It trades about -0.12 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.09 per unit of volatility. If you would invest  29,216  in RBC Bearings Incorporated on September 18, 2024 and sell it today you would earn a total of  2,856  from holding RBC Bearings Incorporated or generate 9.78% return on investment over 90 days.

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

Red Branch Technologies  vs.  RBC Bearings Incorporated

Red Branch Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Branch Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

RBC Bearings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 7 (%) 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 Red Branch and RBC Bearings

The main advantage of trading using opposite Red Branch and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Red Branch 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 Red Branch Technologies 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.