Correlation Between Timken and RBC Bearings

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

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

Diversification Opportunities for Timken and RBC Bearings

-0.69

Correlation Coefficient

Timken  RBC Bearings

Excellent diversification

The 3 months correlation between Timken and RBC is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Timken 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 Timken Company 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 Timken i.e., Timken and RBC Bearings go up and down completely randomly.

Pair Corralation between Timken and RBC Bearings

Considering the 90-day investment horizon Timken Company is expected to under-perform the RBC Bearings. In addition to that, Timken is 1.44 times more volatile than RBC Bearings Incorporated. It trades about -0.05 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  29,785  in RBC Bearings Incorporated on August 30, 2024 and sell it today you would earn a total of  4,181  from holding RBC Bearings Incorporated or generate 14.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Timken Company  vs.  RBC Bearings Incorporated

Timken Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's forward-looking signals remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail 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 Timken and RBC Bearings

The main advantage of trading using opposite Timken and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken 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 Timken Company 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.